Home » Paying off debt » Debt

How to Become Debt-Free or the Three Stages of Debt Repayment


You know that we just paid off all our consumer debt. We paid off all shamefully and inappropriately high amount of it n three years. Smooth sailing it was not and, looking back, how to become debt-free has three stages.

Naturally, I published a post about it.

I wanted to get on the roof of the house, vertigo be damn, and shout it to anyone willing to listen, to the whole city and to the Universe.

Frankly, it wasn’t much better than when I got my PhD and was ready to perform open-heart surgery at the drop of a hat (I am, as my son used to say, a Doctor who can’t make people better, mind).

How to become debt-free as a process, not an act (an act it isn’t, trust me; if you have substantial debt it is an endurance affair).

I realised that the process of paying off debt unfolds at three different stages.

These three stages to debt-freedom are stabilisation, expansion and acceleration. During each of these stages, certain actions and approaches have clear priority.

But let me address these in turn.

How to Become Debt-free Stage One: Stabilisation

You have just realised that you are in debt.

Disturbing as it is, assuming that this is the ‘end of the story’ is likely to land you in even more trouble: getting in debt is only in very few cases an act (e.g. some kind of disaster strikes unexpectedly). More often than not, getting in debt is a process that takes repeated incidents of your expenditure exceeding your income. There may be a variety of reasons for that but this is beside the point: what matters here is that if getting in debt is a process it is more likely than not that it is continuing.

In other words, at the time you figure out that you are in debt you are likely still getting further in debt.

This is why the first stage is about stabilisation or making sure that you are not getting further in debt; this should be done even before you start repayments.

During debt stabilisation you need:

  • Information about all your debt; all your monthly income and all your monthly outgoings;
  • Your main focus is on making sure that your monthly income is higher than your monthly outgoing (including the minimum level of debt repayment);

This is most efficiently and quickly done by reducing expenditure. Please remember that:

  • There is a proportion of your expenditure that you have no discretion to change or not fast enough anyway. Usually, but not exclusively, this category includes your mortgage/rent, council tax, utility bills and, ironically, debt payments. It may be hard to change fast enough different contracts (mobile phones, for instance). So, leave this well alone: don’t waste your time and focus on what you can change.
  • All insurances deserve a very careful look – there are very large gains to be made here and you can benefit fairly fast, usually within weeks. When we did this we manage to reduce our monthly outgoings by a very substantial amount by changing our house and car insurance and paying it in one go (losing the battle but winning the war, since this leads to a temporary cash-flow problem but reduces monthly outgoings thus buying you twelve months) and changing our life insurance. Generally, changing energy suppliers have not been worth it until the last change to Coop-energy.
  • Variable expenditure, all food and small spending, is where the fastest gains can be made; and this is not insubstantial. Don’t stop doing things but do them differently. In our case, we stopped eating out (this actually meant we had a better time with friends), changed supermarkets, started cooking and baking (including biscuits and muffins), and eliminated waste. Pay close attention to what you personally spend – lunches at work, coffee, stationery (in my case an enviable collection of fountain pens).

During stabilisation, paying off debt feels more like sailing a boat (and a rather large one) than driving a car. Things turn very slowly and your only success will be that your finances will be pointing in the right direction – you will be bringing in slightly more than you spend. And enlightened frugality has a leading role at this stage.

Achieving Debt Freedom Stage Two: Expansion

Having stabilised your finances and ensured that you are not getting into more debt means that you can focus your attention on increasing your cash flow, or the difference between what you bring in and what you spend. This is best done by combining enlightened frugality and increasing your income.

Doing the latter sounds scary, I know. But there are probably very few people who have decided to increase their income and have not managed to do so – commitment and desire will make you see opportunities where there were only hurdles before.

I intend to discuss different strategies for increasing one’s income in separate articles. What is important here is that any increase in cash flow ought to be put on the debt, and just watch it crumble.

At this stage income increase is absolutely vital; frugality takes a step back.

Debt Freedom Frontier Stage Three: Acceleration

If you managed to increase your income during the expansion stage and put it on the debt you will notice that it starts going down very fast. This is because of:

  • Reaching the point where you are paying more principal than interest; and
  • Your earnings continue to grow so there is more to put on the debt.

At this stage, increased income is the lead and frugality should take the backstage.


Did you want to know how to become debt-free?

The first thing to remember is that it is a process, not an act.

You can drown in depression, tears and snot.

Or you can recognise that there are three stages on the way to debt freedom coming with different actions and expectations.

Do you think your debt mountain is steep?

You can do it! You just have to figure out how to traverse it!

Good luck!

Photo by Youhana Nassif on Unsplash

3 thoughts on “How to Become Debt-Free or the Three Stages of Debt Repayment”

  1. I like how you are getting tired of the debt stuff…but you write so well about it!  I am in acceleration mode right now for sure…I am almost done being in debt after 20 years of being saddled with it.  Can’t wait!  Thanks for the great post, Maria!

  2. I am in deceleration after getting rid of the biggest interest, I keep normal payments on the rest and focus on extra income and investing. Your debt movement series was great!


Leave a comment