The Ultimate Guide to Personal Finance – Part 5:

Eliminate your debt


If your net worth is in the red, it makes it hard to even conceive investing or saving your cash.

So let's eliminate your debt, once and for all.

Debt sucks.
We know that credit card debt is one of the biggest barriers to living a rich life.

Debt prevents us from enjoying ourselves and investing in ourselves. And worst of all, it buries us in guilt and fear.

We can help. We did some research with our top students to see what works (and what doesn't) when it comes to paying off your debt. We also built a calculator to help you build a straightforward plan for getting rid of your debt once and for all.

Download the free PDF: “The Ultimate Guide to Personal Finance: Money Management Made Simple”

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5 steps to getting out of debt fast | The Ultimate Guide to Personal Finance
Two most important steps to getting out of debt fast: 1. find out how much debt you have and 2. start making a dent
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How much do things cost if you
finance with a credit card?


To show you how costly not paying down your debt can be, I wanted to give you a quick example of simple items that could be costing you thousands more because you haven't tackled your debt strategically.

Take a quick look at this table with a few examples of how much more expensive things get one you finance them with credit cards and minimum payments.

Guess how much an iPod costs if you
finance it with a credit card?

One of the biggest problems with credit cards is the hidden cost of using them. It may be incredibly convenient to swipe your card at every retailer, but if you don't pay your bill the same month, you'll end up owing way more than you realize. Take, for instance, an iPod. It looks like it costs $250, but if you buy it using a credit card with the average 14% APR and a 4% minimum payment, and then only pay the minimum each month, you'll be out almost 20 percent more in total.

Lets say you buy this… Paying minimum payments, it will take this long to pay it off… You'll pay this much in interest…
$250 iPod 2 years 6 months $47
$1,500 computer 7 years 9 months $562
$10,000 furniture 13 years 3 months $4,062

If you paid only the minimum monthly balance on your $10,000 purchase, it would take you more than 13 years and cost you more than $4,000 in interest alone. Remember, this doesn't even factor in your “opportunity cost“: Instead of paying off a $10,000 sofa in 13 years, if you'd invested the same amount and earned 8%, it would've turned into about $27,000!

How you can pay off debt with less pain

Because loans are usually large amounts spread out over many years, the savings can be significant by paying a little extra off your loan each month. The longer the loan, the more you save.

Let's say you have a $10,000 student loan, at a 6.8% interest rate and a 10-year repayment period. If you go with the standard monthly payment you'll pay around $115 a month. But look at how much you'll save in interest if you just pay $100 more each month:

Monthly payments Total interest paid You save
$115 $3,810 $0
$215 $1,640 $2,169
$315 $1,056 $2,754
$415 $728 $3,027

Remember, even $20 more per month can save you SIGNIFICANT amounts of money.

Note: Previously I wrote “You have $100 extra per month. Should you pay off your mortgage early or invest?” and linked to two great articles. The point is, if can contribute even a small amount per month — whether to investments or any loans — the benefits can be huge.

Another example:

Dumb Dan vs. Smart Sally


Paying off $5,000 of Credit Card debt at 14% APR

Minimum Payments Equal Maximum Pain.

Dumb Dan pays the minimum monthly payment

His monthly payment is… It will take this long to pay off… Total interest paid…
$200 2 years, 8 months $1,313.96

Smart Sally pays twice the minimum monthly payment

Her monthly payment is… It will take this long to pay off… Total interest paid…
$400 14 months $436.46
How to get your credit score and credit report

How to get your credit score and free credit report:



Last, 5 rules about
credit cards to live by


  1. Interest Rates

    Interest rate doesn't matter if you don't carry a balance. The interest rate is irrelevant as long as you're paying off your entire balance each month. Don't keep a balance, please – if you are, stop reading now and use my credit card payment calculator to pay it down quick.

  2. Use a Rewards Card

    The vast majority of people should use a rewards card. If you're already spending money, you should be rewarded for it. Exceptions are people who can't qualify, who should instead use a secured credit card.

  3. Travel Cards

    I prefer travel cards over cash back. Most people would benefit more from travel rewards than from cash-back. I describe the details of why in my book. For some reason, people get really mad when I make this recommendation, but I don't care.

  4. General Reward Cards

    I prefer general rewards cards, not airline-specific cards. Unless you fly a majority of flights on the SAME airline, I prefer a general travel card instead of an airline-specific card (like a United card). For example, I fly Jetblue and Virgin a lot, so I want a travel card that I can redeem on multiple airlines, not just one.

  5. Annual Fees

    Annual fees are not Satan's spawn. I know it may be blasphemy to personal-finance “experts,” but I'm willing to pay an annual fee! OMG! This is why you can call me RTR: Ramit The Rebel. In some cases, there are no-fee versions of the card, so you should always calculate if you spend enough to justify it. Still, $65/year is just not that significant to my financial situation any more.

Bonus Rule:

I am merciless about using my credit card perks, which can easily be worth $1,000/year. DO THIS.

Try our Credit Card Debt Calculator


Credit Card Debt Calculator

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Eliminate your debt | The Ultimate Guide to Personal Finance