12 Steps To Pay Off Credit Card Debt

Dear Reader,

As I mentioned yesterday, in 1985, Kim and I had a great deal of bad debt. And even though we kept making payments every month we never seemed to make a dent in the amount we owed. 

Each month we paid a little over the minimum on each one of our credit cards as well as on our car loan. Obviously, there had to be a better way to get ourselves out from under our creditors. And sure enough, there was.

This is the formula Kim and I followed to pay off our debt. You’ll find that if you follow our formula you will be out of debt much quicker than you imagined. Most people find themselves “bad” debt-free within 5-7 years. The key is to stick with the formula. You will not get ahead if you say I’ll just skip this month, and then two, and then three. If you stick with the formula it then becomes a habit you follow for a lifetime.

Before you can start on your way to financial freedom, you first have to pinpoint exactly how much bad debt you really have. For many people, figuring out how deeply in debt they are is like going to the dentist. You know it’s good for you, but it’s not always pleasant. Some people have already given up; they know they’re in a big hole but don’t want to deal with it.

Our Formula

Step #1 – Stop accumulating bad debt. Whatever you purchase via credit cards must be paid off in full at the end of each month. No exceptions. 

Step #2 – Make a list of all of your consumer (bad) debts. This includes each credit card, car loans, school loans, home improvement loans on your personal residence, and other bad debts you have acquired. You can even include your home mortgage on this list.

Step #3 – Next to each item listed make three columns:

  • Amount Owed
  • Minimum monthly payment
  • Number of months

Enter the appropriate numbers into each column. To arrive at the number of months, simply divide the amount owed by the minimum payment.

Step #4 – Based solely on the number of months, begin ranking each debt. Put a “1” next to the lowest number of months, a “2” next to the second-lowest number and continue up to the highest number of months. This is the order that you will be paying off your various debts.

The reason you start with the debt with the lowest number of months is that you want to have your first “win” or success in the program as soon as possible. Once you get that first credit card (or debt) paid off you’ll begin to see the light at the end of the tunnel.

Step #5 – Come up with an additional $150-200 per month. If you are serious about getting out of debt, and more importantly becoming financially free, then generating this extra money will not be difficult. To be candid, if you cannot generate an additional $150 per month then your chances of becoming financially independent are slim. 

Step #6 – Pay the minimum amount on every debt that you have listed except for the one you’ve marked with a “1”. On this first debt to be paid off, pay the minimum amount due plus the additional $150-200. Keep doing this every month until your first debt is paid off. Scratch that debt from your list.

Step #7 – Congratulate yourself!

Step #8 – Pay the minimum amount due on every debt that you have listed except for the one you’ve marked with a “2”. To this debt, pay the minimum amount due plus the entire amount you’ve been paying on debt #1. For example, on debt #1 your minimum amount due was $40, and you added the additional $150 so you were paying a total of $190 each month. On debt #2, if the minimum amount due is $50, you will now pay that $50 plus $190, for a total of $240 per month.

After each debt is paid off, take the total you were paying on that debt and add it to the minimum amount due on your next debt to get your new monthly payment. You will be amazed at how quickly this amount adds up and how quickly your credit cards, car loans, etc., are paid off.

Continue this process until all of the debts on your list are paid off. Step #9 – Congratulate yourself.

Step #10 – By this time the monthly payment you were paying on your last debt is likely to be quite substantial. Keep paying that amount every month. Except now, instead of paying it to your creditors, you can pay it to yourself until you build an emergency savings fund and then start investing. You’re on your way to building wealth!

Two More Steps

While you don’t have to cut up your credit cards to follow a debt-reduction plan there are two more steps: 


  • Pay Yourself First


Whenever you get a paycheck, the first bill you pay is to yourself. Not the car payment. Not the mortgage or rent money. Pay yourself a decent bit of money, and then immediately put that money into a separate investment savings account. Don’t touch it until you’re ready to invest it in some other way.


  • Cut Back on Doodads


Doodads are those extra things in life that we all crave but really don’t need. It might be a fancy car or going out to dinner at expensive restaurants or really sharp clothes. Whatever your doodads are, just stop that habit of purchasing them impulsively. This is where your self-discipline and willpower come into play. If you really want to get out of bad debt, you need to adopt the old-fashioned virtue of delayed gratification.


Robert Kiyosaki

Robert Kiyosaki
Editor, Rich Dad Poor Dad Daily

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Robert Kiyosaki

Robert Kiyosaki, author of bestseller Rich Dad Poor Dad as well as 25 others financial guide books, has spent his career working as a financial educator, entrepreneur, successful investor, real estate mogul, and motivational speaker, all while running the Rich Dad Company.

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