8 Steps to Get Out of Credit Card Debt

Dear Reader,

Kim and I had a lot of debt when we started our lives together. We estimate we had a total debt of about $400,000 and growing, as interest accrued. 

Much of it came from a business I lost early on in my career. (The total business loss was almost a million dollars. Approximately $500,000 of the debt was paid off by the business.) 

On top of that burden, we went through a horrific year in 1985 as we were building our next business. It’s hard enough building a business when there is not much money coming in, but it was even harder with $400,000 of debt hanging around our necks. 

Not a fun way to start a life together. 

When we left Hawaii in 1984, I sold everything I had and shut down my manufacturing business and we moved to California. We ran out of what little money we had in about three months. We found ourselves broke and, for a short period of time, homeless. It was the toughest time of our lives. 

To survive, we maxed out every credit card we could get our hands-on, which meant debt was increasing again. 

Fortunately, a friend let us live in an apartment in her garage as we rebuilt our lives. As those of you who have fallen behind know, it’s hard to get ahead with debt hanging over your head. It was tough just buying a car, which we did at an extremely high-interest rate. 

During this period of our lives, we worked odd jobs just to cover our debts, to eat, and to keep a roof over our heads. We did this after we worked on our business. So, we know well what it’s like to be swimming in debt. We know what it’s like to struggle financially as well as endure the stress and anguish it causes. 

By 1990, we were out of consumer debt and had paid back most of the $400,000 I owed investors. 

Today we are richer, not just because we have a lot of money — but richer from the experience and the lessons we learned digging our way out of debt.

You can do it too, not through wishful thinking, but by having a game plan and sticking to it…

How Much Bad Debt Do You Have?

Before you can start on your way to financial freedom, you first have to pinpoint exactly how much bad debt you 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.

Is it difficult to change your habits? You bet it is. It will depend on how dedicated you are to take control of your financial life. Remember, you don’t have to do any of these steps. But if you don’t, you’ll just remain where you are, in the current Rat Race of spending your paycheck on bills that never stop coming, or get worse.

While you don’t have to cut up your credit cards, you do have to follow a debt-reduction plan.

Before we get to the “8 Steps,” you’ve got to make sure you do the following: 

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 don’t need. It might be a fancy car or going out to dinner at expensive restaurants or 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 want to get out of bad debt, you need to adopt the old-fashioned virtue of delayed gratification.

Remember, to get where you are going, you must know where you are starting from. If you can’t be honest with yourself on how much bad debt you have or are not willing to be disciplined, you will have no chance of becoming financially free. 

How to Get Out of Credit Card Debt in 8 Steps

#1 Stop accumulating bad debt.

There’s a saying that goes, “When you find you’ve dug yourself into a hole… stop digging.”

Kim and I put a freeze on all debt. Anything we purchased was paid off that month. We stopped adding to our existing credit card balances and took on no new loans. That step alone forced us to be much more cognizant of what monies were flowing out.

#2 Make a list of all your credit card debt.

Write down every single debt you owe. Do not include debt for investments, such as rental properties and business investments. And just a reminder, your home is not considered an investment. We are dealing only with credit card debt.

This is often the hardest part of the entire process, especially when you have a spouse or partner. It’s difficult to completely open up about your spending habits. It’s made more complex when you know your spending habits adversely affect someone you love.

Step #3 List the amount owed on each credit card.

From the list you’ve made in Step #2, create a visual drawing of each debt. From there, you can then determine which order each debt will be paid off.

First, draw a quadrant, like this:


In the upper left-hand corner, write in the name of the debt. In the upper right-hand corner, write in the total balance owed. In the lower left-hand corner, write the minimum monthly payment.

Now, divide the total balance owed by the minimum monthly payment. In the lower right-hand corner, write this number and circle it in red. The circled numbers are the number of months it will take to pay off that specific debt.

For example, if you owe $2,000 on your Visa credit card and your minimum monthly payment is $100, then $2,000/$100 = 20. Write “20” in the lower right-hand corner and circle it in red.

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Do that for every debt on your list.

#4 Determine the order for paying off credit card debt.

Looking only at the circled numbers of each debt, find the lowest number and place a #1 next to that debt. Find the next lowest number and write a #2 next to it. Continue to do that until there is a number next to each of your debts. Again, go from the lowest to the highest number. The circled numbers are the number of months it will take to pay off that specific debt.

You may have seen other credit card debt reduction programs listing your debts by the interest rate. So, if credit card #1 has an interest rate of 20% and credit card #2 has an interest rate of 18%, the debt reduction program would have you pay off credit card #1, first.

The reason we propose you pay off the credit card debt with the lowest number of months is that we have found the benefit of getting “wins” incredibly beneficial to your financial and emotional health. Paying off your debts as listed by the number of months not only helps you eliminate debt quickly but also boosts your enthusiasm towards eliminating your credit card debt.

Now, as you can see, you have a clear outline of every debt you owe and the order in which you will pay off your debts.

#5 Find an extra $100-$200 per month.

This may sound a little daunting at first but brainstorm some ideas on how you could do this:

  • Use your expertise and consult for local businesses.
  • Find items at garage sales or secondhand stores and resell them on eBay, other online auction sites, or online classified sites like Craigslist. After all, one man’s junk is another man’s treasure.
  • Mow lawns, etc.

Face it, if you cannot come up with an additional $100 each month, then what do you think your chances are of becoming financially set in life? Probably pretty slim. If $100 per month is stopping you, then financial freedom will be nearly impossible to achieve.

You can find ways to earn the extra money. You just have to get out of your comfort zone and get creative.

#6 Pay off the lowest month number debt.

Now, take the extra money from your side-job(s) and add the extra money into your minimum monthly payment.

For example, if your minimum monthly payment for the credit card listed as priority #1 is $35, and you know you can earn an extra $200 per month mowing lawns in your neighborhood, then you would pay a total of $235 every month on your priority #1 credit card.

Until your #1 credit card is paid off, continue to put any extra money you receive towards that debt.

Except for your #1 debt, pay only the minimum monthly payment for each of your other debts.

Step #7 Celebrate!

It’s going to take some time. This is to be expected. But eventually, you will have your #1 ranked credit card debt paid off. Celebrate it!

This is a big deal. Like we always say at Rich Dad, celebrate all wins. This is no different. You have sacrificed in ways that no one will ever understand.

Pick something you enjoy doing, guilt-free.

Take your spouse out for a nice dinner and a movie. Buy the pair of shoes you’ve been eyeing. But pay for it in cash!

Remember, just because you paid off this one credit card doesn’t mean your work is done.

This is one small step on a long journey. Though it should be celebrated, make sure it’s within reason and it’s something you and your partner agree upon.

Step #8 Continue to pay off your other credit card debts

You made it through the first milestone. Congratulations! Now, turn to debt #2. Except for debt #2, pay only the minimum monthly payment required for all other debts. For debt #2, pay the minimum monthly payment required PLUS the full amount you were paying on debt #1.

Now you are paying more than simply the minimum monthly payment and the extra $100 to $200. With each debt you pay off, you will be accelerating your payments on the next debt.

Play it smart,

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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