Helping A Friend Get Out of Debt – Part 2 – Finalize Your Debt Free Action Plan

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The following post is on behalf of Debt Advisory Line, an award winning debt management company; one of the largest in the UK. They’ve already helped thousands of people who thought bankruptcy was their only option. They offer professional debt management help and advice.

In Part 1 of this series, I began to help my anonymous friend, Debtor Dan, get on the road to being debt free. For those of you that missed the post, let’s just recap quickly to bring you all up to speed with what has been done so far.

Debtor Dan came to me several months ago asking for some help in putting together a debt management plan that would reduce the stress of paying off four debt accounts he had – 1) two credit cards, 2) a  car loan on the verge of default, and 3) an outstanding balance from a health care procedure from the previous year. Dan had been trying desperately to pay down the balances, but was falling behind due to a combination of high interest rates and large debt balances. 

After agreeing to assist in his efforts, I proceeded to work with him on the first step (addressed in Part 1), which was to tally up all of his debt balances in to one centralized spreadsheet. You can view a template Google Docs spreadsheet I put together for everyone to use at the following link – Google Docs Spreadsheet – Collect Your Debts. This spreadsheet contains necessary information about each debt account, including balance, APR, monthly minimum payment, and payment due dates.

Having finished collecting his debts, it was finally time for Debtor Dan to proceed to Step 2 of process, finalizing his Debt Free Action Plan.

How to Prioritize Your Debt Payoff

There are really 3 “camps” of thought for how people should go about prioritizing paying off their debt. Each is summarized in bullet form below:

  • Debt Snowball Method

    • The debt payoff method that is, in my opinion, most popular in the personal finance blogosphere (maybe due to the catchy “ring” it possesses) is debt snowballing.

    • Essentially, this technique involves reorganizing your debt payments so that you pay only the minimum required payment to all debt accounts, except for the one with the lowest balance. You then commit as much money as possible to paying off the lowest debt account balance as quickly as possible.

    • Advantage = It gives the debtor the psychological benefit of seeing the number of their debt accounts dwindle quickly.

    • Disadvantage = This technique also costs you the most money because while you are seeing the number of debt accounts you have decrease, you can still be paying out large amounts of money in interest in your higher interest accounts.

      • For example, if you have a car loan (1% interest) balance of $500 and a credit card balance of $10,000 (28% interest), the debt snowball method dictates that you would pay off the car loan first, even though the credit card debt could be costing you hundreds of Dollars in interest.

  • DOLP (Done On Last Payment Method

    • The proprietary DOLP method is the cornerstone of David Bach’s Debt Free For Life book.

    • It involves assigning each debt account a DOLP number.

      • DOLP number = balance outstanding/minimum payment

    • After assigning this number to each of your debt accounts, you then pay only the minimum payment for every account except the one with the lowest DOLP number

    • In my opinion, this method is good because it takes in to consideration both the psychological benefit of paying off a small account balance quickly and the effect of interest rates on minimum payments.

  • Pay Off the Highest Interest Rate Account Balance First

    • This is my favorite of the 3 methods, and also the one recommended in Ramit Sethi’s book, I Will Teach You To Be Rich

    • This method is very simple because you pay only the minimum required payment on every debt account except for the one with the highest interest rate, which you pay as much as you possibly can.

    • It is my favorite because bottom line, this technique saves you the most money. Why is that? This is due to the fact that with this method, you will be getting rid of your (most costly) highest interest rate account first.

So, as you can guess, the “paying off the highest interest rate account first” approach was the one that Debtor Dan and I went with. 

The Method in Practice

To finalize the Debt Free Action plan, Debtor Dan and I took his Collect Your Debts spreadsheet and sorted it by column D, from highest to lowest APR. We then rearranged the planned payments so that he would only pay the minimums for all accounts except for the one with the highest APR.

For the highest APR, the new repayment going forward would = total amount he is currently paying per month for all of his debt accounts – sum of the minimum payments for the lower APR accounts. Simple, no excuses, and effective.


Clearly, there are many different approaches that can be taken to manage your debt, ranging from simply organizing your debt payoff plan to maximize effectiveness (as discussed above) to more direct approaches of debt consolidation and counseling (when the debtor is in danger of bankruptcy). 

However, as is the case with many things in life, the key is to figure out which strategy best suits your financial situation and personality profile.  

In Part 3 (coming soon!), we’ll go through the steps Debtor Dan and I took to get his debt interest rates lowered with a simple telephone (or cell phone in this modern day) call. Stay tuned!

How about you all? What method do you use to prioritize paying off your debt? Share your experiences by commenting below!

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    1. The only debt I have is a small mortgage due in 7 years. I am retiring in 6 years, so I called the mortgage holder and they told me how much I needed to add to pay it off one year early. If I had a number of debts, I would use DOLP theory, because I am extremely disciplined. I would take it a step further and put it on my line of credit which has a much lower interest rate.

    2. I definitely also prefer the 3rd method. However, how do you take into account the credit card that you’re still making every day purchases on? Especially if it’s the lowest interest card that you’re not paying off first?

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