The Debt Destroyer | The System

by Staff Writer

The Debt Destroyer is the financial management system that I use to Destroy my debt.  It’s an easy to manage, simple, and doesn’t require you to count every penny in your budget.  It offers enough rigidity for the Free Spirit in the family and enough wiggle room for the Nerd.

I’ve been using it for over a year now and LOVE it.  The total time required to manage the whole system is 30 minutes per month.  The system can be accessed from anywhere there is an internet connection; home, work, even your smart phone.  There is automation in the system, but you are still in complete control of how your money flows into and out of your accounts.

Over the next few weeks we’ll explore each part of the system in depth.  The first steps are always the most difficult.  They require you to step out of your normal everyday activities and apply new ones to get your finances under control.  The first  steps will require a bit more effort to achieve, but setting the foundation will make the system maintenance a snap.

Let’s get going ->

Financial Reality Check

It’s pointless to try digging your way out of debt if  you don’t know how deep the hole is.  We’ll gather all your financial data and figure out what your current debt load is (if any, you lucky son of a gun).  We’ll also figure out your net worth so you know exactly where you stand financially.  Understanding your financial position in relation to ground level (debt freedom) gives you a target to aim at.  I was 101,000 feet ($) below the surface, within a year I’ve been able to climb 40,000 feet ($)towards the surface.  Let me tell you, the air (your stress level) gets much better the higher you climb.

Capture Your Daily Expenses

Change doesn’t just happen.  It takes a focused effort, and a strong desire to make it happen.  Understanding how you currently are spending money will highlight the areas you can improve upon to help the bottom line.  If you are spending $5 a day for lunch, you’ll soon realize that equates to over a $100 per month, just for lunch.  You can use this data to make the required changes to your behavior.  If you brown bag it you can usually spend $2 per day, saving you over $60 per month.  Use that $60 to increase your debt snowball.  If you don’t know, a debt snowball is a pile of money that you apply to a debt.  Once that debt is paid off, you take the pile of money and add the payment from the debt you just paid off.  The new pile of money is even larger and is applied to your next debt.  You repeat the process until you all your debts are paid off.

Category Development

When setting up a budget many people get hung up on having a category for everything.  They’ll have one for house insurance, one for car insurance, and one for life insurance.  They will have categories fortheir1st mortgage, 2nd mortgage, home loan, taxes, and so one.   I’m here to show you the how to keep it simple and minimize the amount of categories you have.  The categories are not the important part of the budget, how you allocate the money is.  Simple, meaningful categories are all you need.  Since personal finance is personal, my categories will not be the same as yours, so we’ll use mine as a rough guide for yours.

Sinking fund set-up

Sinking funds are the rocket boosters that make the Debt Destroyer simple, fast, and easy.  Just think of a sinking fund as a place holder for your money.  An electronic envelope if you will.  Money gets allocated to the fund through a deposit, and bills are paid through with the fund.  All records are retained in one location, any cash flow questions can be quickly answered by reviewing each fund (account).

Cash envelopes

Cash envelopes are extremely easy to use, and make purchasing items simple.  I use cash envelopes for groceries, fun money (blow), Sam’s Club, house hold items, and misc personal items.  The envelopes are filled twice per month and once the money is gone, it’s gone until the next pay period.  There is something empowering and limiting about using cash.  I enjoy the strange looks I get at the grocery store when I pull out my envelope.  It may be dorky, but this dork is  on his way to becoming debt free.

ING Account set-up (electronic envelopes)

Even though cash envelopes are cool, they become much less ideal when it comes time to pay bills.  ING is the online bank that I have all of my accounts through.  The accounts can quickly be accessed from just about anywhere, I truly love this product.  I’ll go into detail on how I have it set up and some of cool ways you can use the electronic envelopes.

Budgeting worksheet

This is where the magic happens.  No, not that magic.  The magic of Debt Destroying.  This is where you plan out how you are going to allocate (spend) your money.  If you have done everything correctly, there will be extra money leftover to apply toward your debt.  If you don’t have money left, you’ll need to use this sheet and the knowledge  gained from the other steps in the program to make the sacrifices needed.

Debt Snowball

We’ll build your debt snowball in this section.  There are many different ways to approach a debt snowball and we’ll review many of them here.  The debt snowball, the debt avalanche, the debt snowflake, highest to lowest interest rate, emotional debt ballin’, and a few others.  The point is to have a plan and work the plan.

ING Account usage (how it all works together)

Now that the system is set up, you need to know how to work it and maintain it.  This is where the 30 minutes per month begins.  All the hard stuff is out of the way and you can now focus on living your plan.

Extra income (i.e. get a second job)

Besides winning the lottery or receiving a large sum of money, the quickest way to eliminate debt is to earn more money while you are controlling your spending through a written (typed) budget.  We’ll look at some great ways to earn extra income.  If you’d like to see how I feel about a 2nd job take a look at this post Get a Second Job and Quit Whining About Debt.

If you already have a debt busting system, GREAT.  You will still want to check out this series to pick up some more tidbits.  If you are looking for a system, look no further.  This system has me on the right track and will help you get debt destroying too.

I wish you all the best,



Dr Dean June 25, 2010 at

Good summary of how to get started.

Your personal success is what gives you the authority to say what works.

Look forward to more info on your system.

Jeffrey Kosola June 29, 2010 at

Thanks Dr. Dean, I’ve always dreamed of being one of the debt authorities. Maybe I’ve found my calling 🙂

Financial Samurai June 26, 2010 at

It really is important to add up and figure out how much debt one is. Otherwise, it’s hard to do the eradicating!

Debt free end of the year for you, I can feel it!

Jeffrey Kosola June 29, 2010 at

Hey Sam,

It’s very hard to eradicate debt if you don’t know how much you have. I just keep thinking back to the good old days. The days that I knew I had debt, but didn’t know how much. Ignorance was such bliss 🙂

I’m sure you would be proud of me right now. I’m relaxing and this is the first time in days that I’ve touched a computer. Vacation is cool 🙂 I’m looking forward to watching the Blue Angels practice for a show this weekend. They’ve already been buzzing out place.

Benjamin June 28, 2010 at

Alot of the people I counsel haven’t had a reality check, they think they’re doing well or at least normal. What lead to you having a reality check? More to the point how can I help someone who’s in financial trouble but doesn’t know have a reality check?

Nunzio Bruno June 29, 2010 at

That is a great system. You shouldn’t feel dorky at all about using envelopes at the grocery store if anything that’s kind of “ballin”

I love how organic your plan is. You know what your ideal outcome is and you simply set up the means to track and attain them. It’s hard to fudge the numbers when you are physically restraining yourself by using actual currency. Nice work!

I agree with Financial Samurai – at this rate you will totally be debt free before you know it! I’m in for an end of the year betting pool spot too.

Jeffrey Kosola June 29, 2010 at

Thanks Nunzio, I’m always up for a challenge, finishing by the end of the year is a stretch but I’m in. Thank you Sam and Nunzio, let’s see what a little push from two friends can do 🙂

Jaime @ Eventual Millionaire July 5, 2010 at

Awesome Jeff. I use ING just like you do. It makes it so easy to categorize money.

I just want to thank you too, I followed all of your links to actually figure out what a sinking fund was. I had never heard of that term before! Now it makes sense. Thanks!

Keep crushing it. 🙂

Jeffrey Kosola July 6, 2010 at

Hi Jaime,

ING rocks, and I HIGHLY recommend them to anyone with a $1 to their name. Sinking Fund is just another name for a savings account, or envelope, or “stash”, or bank roll, or Piggy Bank, or anything else that is used to hold money. I think its just a fancy term, but boy do I LOVE them 🙂

myfinancialobjectives July 13, 2010 at

This article reminds me of a discussion I recently had with someone at work. She approached me and basically said I want you to be my financial planner. After telling her I could not do that, I proceeded to ask her Dave Ramsey style questions to get to know her situation, and then make my suggestions. This discussion and others I have had with people made me realize that financial literacy is a serious problem in our country today! If more people would read, even just THIS POST I bet we would see some improvement! All great points!!

Forest July 18, 2010 at

Hey Jeff, sorry I meant to comment here before I left for vacation…. You are going to make an awesome product I am 100% sure. I’ll be emailing all my readers and pushing this when it’s ready.

Jeffrey Kosola July 19, 2010 at

Thanks Forest, I’m glad you are back from Vacation and had a great time 🙂

Shaun July 25, 2010 at

The debt destroyer sounds so valuable. If one can at least manage to slow down getting into the deep hole of debt then a total elimination would be a great accomplishment and a very rewarding financial climb up.It is of course unusual to end debt at one point but if this system could take into the process I guess that was practically a good start of a financial success.

Nicole June 20, 2012 at

Hi Jeff. I came across your blog today, and it’s exactly what I needed to see. You really put things in perspective for me and reinforced all the thoughts I’ve had about debt. In 2010 I was $78,000 in the hole. Today I owe $52,000. Don’t get me wrong, I’m happy with the progress I’ve made (I sold my car 🙁 ) but I know I can do better. I’m happy to say I got a part time job yesterday and I can’t wait to start tomorrow. I am so focused and determined to get my debt paid off, I can taste it. I can’t wait for the day when I don’t have to make a payment to the bank and/or government, Eeks! I know working a part time job means I’m going to be tired (I love to sleep) and that I’ll miss out on social activities but like Dave Ramsey says “Live like no one else (today) so you can live like no one else (tomorrow). I am soooo ready to sacrifice and work hard now so I can be debt free in the future. Thanks for sharing your words of encouragement and I hope all is going well on your journey to financial freedom 🙂

MultimillionaireRoad June 24, 2012 at

Thanks Jeff.
The ING account sounds great. Would you recommend it for a Brit? Is it easy for us to set up? Is there a similar UK equivalent? Are these stupid questions? ;D

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