30 Day Financial Transition Challenge Day 3: Pay Off Personal Debt

Welcome to Day Three of the 30-Day Financial Transition Challenge.  Today’s article focuses on the concept of paying off debt, which is the third of the Five Fundamentals of Fiscal Fitness.

Bottom Line Up Front (BLUF)

Paying off personal debt is a foundational step towards establishing your financial future.  While the proper use of leverage (like buying a house) can help you grow long-term wealth, many people find themselves living beyond their means by using credit cards and other high interest debt.  Getting beyond this ‘negative growth lifestyle’ is a key step towards achieving your financial goals.


If you have significant amounts of personal debt, this will hold you back in three meaningful ways:

  • Every dollar that you pay in interest is a dollar you cannot invest. If you’re paying interest on things that have lost value (such as anything you consume), you do not have the ability to invest in your future.
  • Interest works against you, instead of for you. The key to building wealth is to have the power of compounding interest working in your favor.   Having significant amounts of debt means that this principle works against you.
  • Simply paying off your debt is not enough. You must change the behavior that got you into debt in the first place.  When they come across a financial windfall (such as an inheritance), many people pay down their debt, then wind up back in debt quickly.  Why?  Because they never stopped the bad behavior that got them into debt in the first place.


Your goal should be to account for all of your debt, then develop a plan of action to tackle that debt.  Although, this article will break down the steps on how to identify your personal debt, we will not discuss paying down personal debt today.  In fact, this series is not designed for people who are at significant risk.  We will identify how much financial risk that is, so that you can seek help as necessary.

We will simply identify how much personal debt you have, then determine whether this is something you can handle yourself, or whether you need to seek assistance from a financial counselor.

For the purposes of this exercise, we will not include your home mortgage, car loans, or student loans.  Since these loans are designed to be long term in nature, we will focus our efforts on how to pay down consumer debt, like credit cards, home equity lines, and signature loans.

However, if you have concerns about your ability to pay off credit card debt AND continue your mortgage, car, or student loan payments, you should probably stop right now and seek financial counseling.

Relevant articles

What you need

For this exercise, you need:

Recent copies of all credit card and consumer loan documents.  This should include signature loans, home equity loans, and home equity lines of credit (HELOC) with a positive balance.  You do not need to include mortgage, car loans, or student loans here.  If all your accounts are automated by Mint or a similar program, all the better!


  1. Add up all of your personal debt. This is pretty straightforward.
  2. Figure out your current savings rate. This should be the same number as your Day 1 exercise.
  3. Add your savings rate to the amount that you are paying towards your monthly payments.
  4. How many months (or years) would it take to pay off your debt at this point? If the answer is more than a year, you need to stop right now and talk to your installation’s financial counselor.  This program is not designed for people or families with more debt than they can pay off in a year.
  5. Figure out whether your debt has been going up or down.
    • If you’ve been paying debt, use your current numbers to figure out whether you need to bump it up so that you’re debt free by the time you transition.
    • If your debt has been going up or stayed steady, you might want to decide whether you should talk to your installation’s financial counselor.  Debt that you incurred for a one-time event might put you in a different position from someone who is still trying to control their spending habits.  Either way, you probably know where you stand.

At this point, if you have not set up a meeting with your financial counselor, you probably have a good idea that you’ll be able to pay down your consumer debt (credit cards, HELOCs, and signature loans) by the time you transition, or that you can do so by bumping up your payments with money from your current savings (Day 1).

Ideally, being able to pay off your debt fairly quickly will increase your ability to pay yourself first.


To wrap up, today you’re going to:

  • Figure out if you need financial counseling.
  • Figure out how long it would take for you to pay off your personal debt at your current rate.
  • Determine if you have flexibility to pay down your personal debt faster if desired.

We will wait until we have a little more information before we actually figure out a debt payment plan.

Tomorrow, we’ll discuss the importance of your primary residence, and the decisions you should be considering as you transition.








About Forrest Baumhover

I'm a career naval officer, and a fee-only financial planner. Half-way through my career, I discovered that I had a passion for financial planning, and have pursued this as my second career. My specialty is working with military professionals who are looking to separate or retire from the service, and who feel they need some professional guidance to make sure they're on track.
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3 Responses to 30 Day Financial Transition Challenge Day 3: Pay Off Personal Debt

  1. Pingback: 30 Day Financial Transition Challenge: Day 2-Have Sufficient Liquidity

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