Getting Out of Debt: Tactics to Live By for Financial Success



You can improve your finances in the long run through utilizing a key financial tool – good debt. The key being the word “good”. Good debt can help you pursue important goals in your life, such as going to college, buying a home, or building a business. But there’s also another type of debt that you want to try and avoid – bad debt. Types of bad debt include credit card debts, which weigh you down with interest payments while doing nothing to increase your financial position or add income.

For most, it can be a challenge to get out of debt, much less adapt to ways of living to avoid it altogether. It takes constant reinforcement of the goals and reasons why you want to get out of debt in order to succeed. Ask yourself what the benefit is of paying off debt in your life? What could you do, debt free, that you can’t do now? Use these questions to frame your motivation for being a good steward of your debt. Otherwise, you could wind up in a position of financial insecurity.

Let’s dive into why it’s important to pay off old debts, set a plan for getting out of debt, and ultimately shifting your life to a position of avoiding bad debts where possible.


Why Pay Old Debts?

Debt collection accounts are simply bad to have on your credit report no matter how old their age. Collection accounts reflect poor creditworthiness, resulting in a harder time trying to secure new credit cards, personal loans, car loans, mortgages and more. Keeping your debts out of collections is critical to your overall credit report and rating.

Plus, you have a moral obligation to pay off debts owed. Why? You enjoy the benefits of the goods and services that the creditor extended to you in advance of payment. You, therefore, are responsible to pay for those items. How would you feel if your employer withheld money they owed to you.

The benefits are great:

  • Your credit report when updated will show that you have no unpaid collections
  • Creditors will be more willing to give you new credit when you have no outstanding obligations
  • Creditors will consider you to be more financially trustworthy
  • Your debt-to-income ratio decreases, which increases your overall financial health

Salvage what you can. Don’t sacrifice accounts that are in good standing for accounts that are not. Continue making timely payments on all your current accounts. Keep in mind, the Statute of Limitations on debt in the Cayman Islands is six years. Before you pay old accounts, check to see if six years has passed since you last received correspondence from the creditor or had a transaction on the account.


How to Get Out of Debt

You have to start with the motivation and desire to get out of debt. From there, you need to make a plan and stick to it. Start small, and work your way up. Don’t bite off more than you can chew, but assess what makes sense and works for your budget. Most important, you must execute on your plan by taking action. This is where many fail.

When credit lines are maxed out it can be difficult to figure out how to get out of debt.  The key is to figure out which accounts you should pay, in what order you should pay them, and how much you need to pay to eliminate your debt. By attacking each of these hurdles one by one, you will create a plan that you can achieve to get out of debt.

Here’s the plan:

  1. Calculate your total debt
  2. Prioritize your creditors
  3. Determine how much you can pay
  4. Put your plan into action
  5. An example plan

Now here’s how to put it all into action.

  1. Calculate your total debt

Start by figuring out who and how much you owe. Get a copy of your credit report because it will list all of your financial obligations, these are the ones creditors will use to determine your financial trustworthiness. You may also have other debts that are not listed on your credit report. You’ll need to get copies of those statements as well.

On a single sheet of paper, write down the name of each creditor, total amount owed, monthly payment, and interest rate for each account. Depending on your goals for getting out of debt, you may want to consider only bad debt, such as credit cards and small loans, to start.

  1. Prioritize your creditors

Now you need to figure out who you want to pay first and how you want to pay them.

Pay off creditors that are charging you the highest interest rates. Rank your accounts from high to low using this metric. Pay your debts in this order.

Alternatively, if your high interest debts also have high balances, you could end up paying on a single account for months before the entire balance has been repaid. Many people prefer to pay smaller debts first because it cleans up the credit report quicker and keeps them motivated to continue paying off debts.

Whatever option keeps you motivated is the right choice for you.

  1. Determine how much you can pay

Total your income from all reliable sources including wages, alimony, child support payments, bonuses, or dividends.  Then, subtract what you spend each month on all your expenses to figure out how much free cash you can have to pay down your debts. Download this Budget Worksheet to use as a guide.

  1. Put your plan into action

Apply your available money determined above to pay off your debts.

Depending on whom you decide you want to pay first, put all of the extra money you have determined you have towards paying that debt off first plus the minimum payment amount. This will either be your smallest debt or the debt with the highest interest rate.

You should continue making minimum payments on your other debts as well, so allow for this in your budget.

After paying off the first debt, combine the minimum payment from that debt with the extra amount you’ve allocated for repaying your debts and put it towards the debt with the next highest interest rate (or next smallest balance). Repeat this process until your debts have been completely repaid.

  1. An example plan:
    • Determine what and who you owe:

    • Download and complete the Budget Worksheet to determine how much extra money you have to repay your debts.
    • After completing the worksheet you determine that you can afford to pay an extra $250 each month to repay your debts. Let’s say that you decide you want to pay off the small balance first, you should then start with the Visa credit card account because it has the smallest balance. Each month, make a payment of $310 ($250 plus the minimum payment of $60) until the debt has been repaid. Even though your minimum payment will decrease as you pay off the balance, continue sending $310. Once you have repaid the Visa credit card, you should then repay the Retail charge account, the next smallest debt balance. Your payment should be $560. This is because you should now apply the $310 you were paying to Visa credit card plus the $250 you were already paying to the Retail charge account.
    • Finally, when you have repaid the Retail charge account, use all $560 plus the $375 you were already paying to repay the Auto loan.

Remember things change over time so it is important to update your plan as necessary each month.


Personal Credit Repair

Now that you have a plan of action in place, you need to monitor your credit report and work diligently to avoid collections. If you already have some accounts in collections, there are ways to repair your credit and improve your report. There are four steps to credit repair.

  1. Get the latest copy of your credit report

To start repairing your credit you need to know what you need to repair. Your credit report will contain all the information you need to know to start repairing your credit.

  1. Review your report

Set aside some quiet and peruse through your credit report once you receive it.  It is important to understand the information contained in the report and how it affects your credit. Using different color highlighters or pens to highlight what you need to repair.  Things to look for are:

      • Incorrect information, including accounts that aren’t yours, payments that have been incorrectly reported late, etc.
      • Past due accounts that are late, charged off, or have been sent to collections
      • Past due accounts that creditors are now taking legal action against you
      • Maxed out accounts that are over the credit limit.
  1. Dispute inaccurate information

You have the right to dispute any information in your credit report that is not correct.  To dispute a charge on your account, see Dispute a Debt.

  1. Tackle past due accounts

Creditors determine credit worthiness by payment history. Past due accounts on your credit report will send a negative message to your creditors and will most likely affect your future credit applications. It is crucial to take care of these past due accounts immediately. Your goal should be to have all your past due accounts being reported as “current” or “paid.”  

A debt collection is one of the worst entries on your credit report. A collection is a severely past due account that will make it difficult for you to get approved for new credit and loans. If possible, never let a debt account go into collection.

That said, if you are facing collections accounts on your credit report, you can improve it by getting these collection accounts reported as “Paid in Full” or “Paying as Agreed.”

Before you pay off a collection account, always negotiate with the debt collector to have your credit report updated to something favorable. Whatever you negotiate with your collector, ensure that you are able to fulfill the arrangement you have negotiated. If not, you collector can report your status as something unfavorable which will only serve to worsen your credit report.

Most collectors want payment in full as opposed to a settlement payment or payment plan.  Depending on the member, the age of the debt, and a number of other factors, you may be in a position to negotiate a settlement on account. Collectors are always open to consider any reasonable offer and will be happy to present it to the creditor for consideration. Offer the collector a settlement payment which is some % less than the full amount owed. Remember to get the collector to agree to update the account as “Paid in full.” The agreement should be in writing.

Be sure to keep proof of payment. Monitor your credit report to make sure the collector updates the account as paid. If the collector does not update the account, dispute the account and provide proof of payment if necessary.


How to Avoid Debt

Once you’re out of debt or have improved your credit, you still need to be mindful of using credit wisely to avoid debt. Recognizing certain bad spending habits now can save you money and stress later. Here are 5 spending habits that lead to debt:

  1. Spending more money than you make.

Sound impossible? Think again.  Although you may make $3,000 a month, you could possibly be spending $3,200 in a month? It’s easier than you think and you might be doing it.  For example, if you are using your savings, borrowing from others, or using your credit cards to cover your expenses, you are well underway to spending more than you are making.  Alas, this won’t last long. Before you know it, your savings is depleted, your credit lines are maxed out, and you can’t borrow any more money.

  1. Spending money you don’t have.

You spend money you don’t have by using credit cards and taking out loans to pay for your expenses and other things but did not have enough money to pay for it at the end of the month. When you use these credit lines pay bills and make purchases, you’re creating debt. If you can’t repay the debt each month, it will continue to grow.  If you have made a purchase that is planned to be repaid over time this is ok, but be careful you don’t take on too much debt all at the same time.  This will come back to bite you later.

  1. Using credit for ordinary purchases.

Making everyday purchases like groceries, gas, clothes, and entertainment is appealing because you have the ability to pay later for items that you buy now.  Unfortunately if you are like most people, you are less likely to pay your credit card bill in full for items that you’ve already consumed. Don’t use credit in place of cash for ordinary purchases; it is a bad habit.  Unless there is some extraordinary need, try to get in the habit of thinking ‘no cash no splash’.

  1. Using credit when you have cash.

People like to consider that they are benefiting when they buy on credit because they feel that they are leveraging other people’s money.  In most cases this is correct.  But if you pay late on your credit card then the late fees will erase any benefit you might have gained.  The reality is that if you don’t want to pay for it today, you will probably not want to pay for it tomorrow.  Because of this, saving your cash today can cost you cash tomorrow.

  1. Using debt to pay off debt.

When you use one credit line to pay off other credit line(s) you are really not paying off anything. You’re just shuffling your debt around and incurring more debt each time you do so. New credit lines usually come with some sort of placement fee so when you use debt to pay off debt, you end up worse off than when you began because you have only successfully increased your debt.


Good debt can be a useful financial tool, while bad debts can be an anchor that drags you under. Be careful with debt. You need some good debt to pursue certain goals in life, but you want to avoid bad debt wherever possible. If you area already in debt, or even have accounts in collections that are past due, it is important to begin right now to remedy your finances.

By negotiating and resolving bad debt accounts and getting them out of collections status or amending their status to something more favorable will help you improve your credit report. Paying off debts with the highest interest first, and working your way down, will be another way to improve your credit report.

Always monitor your credit report, have a plan and stick to it, and most importantly – take action. 



Ready to take control of your credit? CINCB can help. Get your credit report and rating today from CINCB! Want to check your credit report right now? You can easily and securely order your credit report online, with quick turnaround (usually 24 hours or less). You can get your credit report here – Get My Credit Report.

CINCB has been established since 2002 to provide debt collection and credit reporting services. CINCB serves over 260 creditors locally and internationally with a local team of highly experienced agents ready to serve you.  Services are delivered fully online at www.CINCB.ky.  Contact us today to find out more.

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