• Understand How Interest Multiplies Your Debt Obligation
  • Identify Your Emergency Short List
  • Don’t Forget Irregular and Periodic Expenses
  • Place Major Purchases On Hold
  • Understand the Importance of Building a Support System
  • Be Aware of Impulse Spending Pitfalls


  • Read –  Chapter 3,  Stop Adding Any New Debt
  • Keep a daily written record of expenditure
  • Complete the activities
  • Study the debt obligation scenarios

Workbook Download

Download the Lesson 1 workbook. All the activities you will need to complete are located in the workbook.

Lesson 2 – Money Values


Before you can eliminate consumer debt, you have to get it to stop moving. This first step in your journey to a debt-free and wealthy life begins by ceasing to add any new debt to your current financial situation.

This is an easy step to explain but it’s a tough one for many to master. You may have been conditioned to get what you want for so long that it’s become second nature.

Some people know their own credit limits better than they know their own checking account balances. They plan their next credit purchase the minute a payment goes in to lower the available balance on their credit card(s).

It may take great will power, but you’ve got to stop adding debt immediately.

How Interest Multiplies Your Debt Obligation

Let’s look at some examples to help you understand more fully how credit card debt can compound over time—even if you never charge another item to your credit card!

Scenario 1: Steven and Christie

Steven and Christie Burke have a credit card with a balance of $4,500. The annual interest rate (APR) is 18%, or 1.5% per month. The minimum monthly payment is $75.

Even though the Burkes have been paying their monthly minimum payments on time, and not adding any additional debt on the card, the balance doesn’t seem to be going down.

Here’s why:

At 18% interest, with a minimum payment of $75, the monthly interest being added to the account is approximately $67.50. Therefore, only

$7.50 is applied to the principle balance on the account. ONLY $7.50! The remainder of the payment ($67.50) goes toward the interest accumulated on the account for that month.

Using a credit calculator, Steven discovered that if they continue to make minimum payments and don’t make any more charges on the account, it will take 151 months or 12 ½ years to pay off the balance! And that’s not the worst of it! The total amount of money they will pay $11,325.00—that’s almost three times the original amount and most of it is interest!

Credit Card Balance: $4,500

Interest Rate (APR): 18%

Min. Monthly Payment: $75

# of Months to Pay Off Debt: 151

Total Payment: $11,325

Senario 2: Jana

Jana accumulated credit card debt while she was in college. Just like the Burkes, Jana has a credit card with a balance of $4,500. The APR is 18% with a minimum monthly payment of $75. Jana cut up her card, and plans to pay off the debt as soon as possible.

Jana decided she can pay twice the minimum payment ($150 rather than $75) to pay off the debt more quickly. Using a credit calculator she found online, Jana determined that simply increasing her monthly payments would greatly decrease her financial obligation by cutting the amount of interest she’ll pay as well as chopping off years of monthly payments. Here are the statistics:

Credit Card Balance: $4,500

Interest Rate (APR): 18%

Monthly Payment: $150.42

# of Months to Pay Off Debt: 40

Total Payment: $6,016.80

By doubling her monthly payments, Jana’s card will be paid off in less than four years and her total payment will be approximately $6000 rather than $11,325.00 (if she continued to make only the minimum monthly payments).

Scenario 3: Revisiting Steven and Christie

After getting over the shock of compounding interest on their credit card account, Steven and Christie sat down together and made a more aggressive budget to pay down the debt.  Also, by cutting out a few discretionary purchases, and tightening their belts, the Burkes decided they could pay about $250 a month to retire the credit card balance.

Using the same debt-down calculator Steven used, Christie determined that they could pay off their credit card in 22 months by paying $241.66 a month. The total amount they will pay is $5,316.52—rather than $11,325.00.

Credit Card Balance: $4,500

Interest Rate (APR): 18%

Monthly Payment: $241.66

# of Months to Pay Off Debt: 22

Total Payment: $5,316.52

Steven and Christie will be free of this debt in less than two years! They’ve made a commitment to forego the impulse spending that added to this card in the first place. They’re excited about the feeling of accomplishment they’ll have when the obligation is paid off, and they will have achieved their goal of financial freedom.

Cut Up Your Credit Cards

Credit cards are most likely the very culprit contributing your financial burden. Cutting up your cards is the first and most important step if you really want to get out of debt.

If you were trying to overcome an addiction to alcohol or drugs you would never consider carrying a bottle of booze or a few pills in your pocket would you?  If you haven’t been able to control your credit spending thus far, what makes you think you can do it now? Will power? That’s not good enough. You have to remove all temptation to add additional debt starting today.

If you need a card for business expenses, such as reserving a hotel or airline ticket or car rental, you may want to keep just one card. Keep the lowest interest card and destroy all the others.

If you need to keep one card, it’s critical that you don’t keep it with you. If you don’t have the card in your wallet or purse, it’s easier to not use it.

Just destroy all but your lowest interest credit cards, or better yet, you may want to consider destroying all the credit cards and keep only a debit card that will not allow you to charge more than you have in your account. The only reason to keep one credit card is to cover you in the event of an emergency until you have a reasonable cash emergency fund established. It may be your only resource.

The challenge with keeping one card is determining what constitutes an emergency. There are few situations, even emergencies, which would require you to pull out your credit card on the spot and use it. Keep it at home in a safe place and you won’t be tempted to use it when your emotions take over and tell you that you just need to make one more purchase.

Your Emergency Short List

Your emergency fund should only be used for a very short list of real emergency items— such as medical expenses, unexpected car or house repairs, etc. Consider for a moment what items should be on your personal emergency list. For example, if you rent an apartment, house repairs are generally the responsibility of the landlord or apartment owner.

Activity 3.1: What’s On Your Emergency Short List?

Budgeting for Irregular or Periodic Expenses

As you take control of your financial present and future, be sure to budget for irregular or periodic expenses so these charges don’t end up on a credit card. For example, you may have a $600 car insurance payment due twice a year, and if you haven’t budgeted for it, you’ll be tempted to charge the expense on a credit card—another new debt! Don’t do it!

Include these periodic expenses in your budget. As you put together your financial plan, think of this $600 car insurance expense in terms of $100 per month that you can put into savings or another account until the insurance comes due. Think of all expenses on a monthly basis.

That way, you don’t have to be in a financial panic when it’s time to make the payment.

Activity 3.2: Irregular or Periodic Expenses

The only way “Stop Adding New Debt” works is to do it cold turkey. Don’t just put all your cards in your desk and think you have followed this step. The cards must be destroyed and unusable. Why tempt yourself to break this rule? You’d never consider putting a bottle of booze in front of a recovering alcoholic, so just destroy your cards to avoid any potential for temptation.

Avoid Making Any Major Purchases

Getting out of debt requires planning and patience. There may very well be something that needs replacing in your home, but you need to resist the temptation to get it now.  Try to make due for a while longer. If you need to replace something, look first for something used. Check with a friend or family member to see if you can borrow one or get one from them. Check the local thrift store for a used one. Just try to avoid going to the store to look at new ones. The emotions will take over and you’ll find yourself taking a step back if you do. No new major purchases!

Activity 3.3: Major Purchases You Are Considering

Think of some major purchases you are considering making in the next few months or years and list them below. If you have a spouse or partner with whom you share finances, be sure to include that person in this activity.

The best way to get out of debt fast is to focus all your resources on your debts without any distractions. It’s like putting on a full-court press in basket- ball. If you don’t keep the pressure on your debts, they will get away from you for a breakaway lay-up and all the pain and stress you feel right now will return.

Pay in Cash or with a Debit Card

Have you ever wondered why plastic chips are used in casinos rather than playing with cash? It’s because the plastic chips help you forget that you’re losing real money. Seeing real dollars leave your control and go into someone else’s control can have a very powerful impact. It’s just not the same feeling when it’s a little piece of plastic with a number on it.

There is something powerful about paying cash when you make a necessary purchase.

The checkbook and credit cards are the tools you used to create your money problems. Don’t let them make it worse. When the cash runs out, you can’t spend any more money until the next paycheck. You’ll learn pretty quickly to distinguish between wants and needs when you’re holding that last $20 and it’s a week until payday.

Key Point

Having a buddy system is a proven factor when it comes to achieving a specific goal.

Activity 3.4: Your Support System

You’re more likely to spend and charge items you don’t need and can’t afford when you’re alone. So one of the best tips is to surround yourself with trusted friends and family. Avoid being alone where you’re likely to start feeling lonely and sorry for yourself. That’s when your resolve is the weakest and you’re most likely to slip. It’s harder to break this rule when you’re with someone who knows you’re trying to get out of debt and wants to help you.

Activity 3.5: Identify Discretionary Spending

Think of the purchases you made during the past couple of months that were discretionary. For each purchase, try to remember if the purchase was made while you were window shopping, surfing the internet, a purchase due to an infomercial, etc.

You may find it very enlightening to look back through a year’s worth of credit card statements as well as bank account statements to review past purchases. List the purchases below along with the amount:

Spend Only for Basic Needs

In order to get back on track, you need to have a clear focus on what’s most important and cut out all the financial distractions in your life. There are really just four universal primary spending categories that everyone has.

  •   Food
  •   Clothing
  •   Shelter
  •   Transportation

Everyone has these expenses and they will likely never go away. There are a wide range of choices you can make on how you spend your money on these four primary expenses.

When you’re focused on getting out of debt, you’ll look at these basic necessities in a little different perspective. If you’re like most people you’ll quickly see that many of the spending choices you make in these primary areas are more a lifestyle choice than a necessity. A candid honest appraisal of your spending in these four key areas is likely to identify several potential large savings that can accelerate your progress towards your goal of debt freedom.

Activity 3.6: Spending Considerations

As mentioned in his book, Ross suggests you consider the following questions

  1.  Do you really need to drive a new BMW or could you get where you need to go just as well and for less money with a used Toyota?
  1.  Do you really need a house with four bedrooms when there are only 3 members of your family?
  1.  Do you have to have the latest brand name fashions or can you live with being clean and neat in last year’s styles at a huge discount?

The Most Common Stumbling Block

The most common stumbling block for most is putting pride in their pocket and admitting they can’t afford the lifestyle they currently live and having the courage and commitment to take action to “right-size” their financial life. If there were a “secret sauce” to debt-elimination, that would be it. The courage to change when it means sacrificing something we enjoy.

Everything else you spend money on is discretionary, meaning you make a choice to spend it or not. In order to get out of debt, you’re going to have to CHOOSE to not spend on things that are not necessary. Optional items such as cell phones, magazine subscriptions, eating out, going to movies, gym memberships, and snack foods are all things we could do without if we really wanted or needed to.

You may think a life without those little extras would be difficult, but consider that a Spartan lifestyle is much less stressful and more fulfilling than a life filled with a burden of debt and all the challenges that come with it. So here’s your first big choice, do you want to make the sacrifices in the short term to have the life you dream of over the long term? If the answer is yes, congratulations, you’re ready to tackle the rest of the seven steps in Ross’s simple plan. As you begin to implement positive change, your life is about to change for the better by following this powerful plan.

Activity 3.7: Discretionary Items You Currently Buy


Once you have stopped adding new debt to your situation, you have a stationary target that you can zero in on and eliminate. Just remember it’s almost impossible to hit a moving target when it comes to getting out of debt