Dealing with debt collectors is stressful. It’s tempting to give up and ignore it, but don’t! Your hard work will pay off when you make your last payment and feel liberated, relieved, and debt-free.

Best of all, you can take the discipline it took to pay off your debt and use it to beef up your retirement and investments to launch your way to financial freedom (Go here to read more about the Top Money Fit Moves).

Step 1: Make a list of all your debts

This will you allow you to:

1. Create a plan of attack so you can start aggressively paying off your debts, one by one.
2. Bonus: Avoid being SCAMMED when you are called by scammers posing as collectors.

How to get an accurate list of your debts (who you owe money to):

• Get your credit report(s) from annualcreditreport.com. (More about credit reports here

Creditors are not required to report debts to credit agencies, so it’s possible to have a debt that is not listed on your credit report. However, credit reports will likely contain many if not all of your debts, so it’s a great place to start.

What are the most common types of debt?

• Credit card
• Car loan
• Medical bills
• Student loans
• Home Equity Loan
• Cell phone bills
• Utility bills
• Personal loans
• Payday loans
• Mortgage loan (home loan)
  • Note: I consider a single home mortgage to be an acceptable form of debt, as long as it is:
    • Within your budget (Not more than 25% of your take-home pay)
    • A conventional fixed-rate mortgage–NOT a:
      • ARM– Adjustable Rate Mortgage or
      • Balloon Payment Mortgage
    • Has a relatively low interest rate
      • Check market rates at BankRate.com

Step 2: Decide which method you want to use to attack debt

Method 1: Highest Interest Rate First

• Benefit: Most Cost-Effective–theoretically

Organize your debts by interest rate–Pay off the debt with the highest interest rate first and then work your way down.

If you are extremely disciplined, this is the most cost-effective way to pay down debt, as you’ll save money on the accrued interest. However, it’s not necessarily the most mentally easy way to pay off your debts.

If you think you’ll benefit from the emotional boost of quicker wins, check out the Debt Snowball Method.

Method 2: The Debt Snowball Method (more motivating)

• Benefit: Most emotionally motivating (so possibly the fastest and most effective)

The Debt Snowball method is from Dave Ramsey, a well-known personality in personal finance. He suggests attacking your debts from smallest balance to largest.

Ramsey feels like the small, more immediate wins will help propel you to attack those more intimidating, larger debts. I agree–I think trying to attack your largest debt first, even if it carries the highest interest rate, could be discouraging and unproductive.

The steps are outlined on Ramsey’s website–How the Debt Snowball Method Works:

1. List your debts from smallest to largest (regardless of interest rate)
2. Make minimum payments on all your debts, but more on the smallest
3. Pay AS MUCH AS POSSIBLE towards your smallest debt.
4. Repeat steps 1-3 until each debt is paid in full
5. CELEBRATE because you are debt-free!

Step 3: Get Creative to Pay off Debt Faster

Idea 1: Create a visual

Visuals can be helpful and motivating reminders. Seeing those debts paid down can help us stay focused and motivated to knock down those debts one by one.

Idea 2: Name your debts after villains from your favorite franchise

I got this idea from a YNAB Debt Facebook group I’m in.

One debt-warrior named her debts after the villains from Harry Potter and was fighting them one by one: Bellatrix, Nagini . . . her last and biggest debt was, of course, Voldemort–she couldn’t wait to get at it.

Idea 3: Make it a Game: Take On Extra Jobs–You’ll Spend Less

Get playful with it. Think of every (legal, of course) way you can to make a few extra bucks to put towards your debt.

Walk dogs.

Deliver pizzas.

Sell your unused household items.

It may not seem like much, but by putting all your mental energy towards paying off debt,  you’ll be too distracted and motivated to want to spend money on things you don’t need.

By making MORE and spending LESS, you’ll be attacking debt from two sides.

BONUS: How to Deal With Debt Collectors

I love this article about dealing with debt collectors from Dave Ramsey’s site.

Some top tips from that article:

1. Avoid scammers
   • Know Your Debts.
     • As stated in Step 1 above, know what debts you owe to help you avoid scammers trying to collect on fictitious debts.
   • Make sure you know who you are dealing with. Real debt collectors should be able to provide their:
     • Name
     • Company
     • Address
2. Negotiate and settle–IN WRITING
   1. If you’re able to work out a deal with a collector, DO NOT send any money unless that negotiation is IN WRITING.
3. Do not give them direct access to your bank accounts
   • If you provide them with a bank account and routing information (as listed on a check), they could clear out your bank account, leaving you unable to provide for the basic needs of your family (food, utilities, shelter, transportation to work).
   • Don’t do a direct deposit from a payroll account if it would grant the collector access.
   • Dave Ramsey suggests sending a prepaid debit card.
   • If you use a checking account, it should a different account than you pay bills with. Put only as much money as you agreed to pay the collector with.

Your mission objective is clear: destroy that debt. You’re on your way to that triumphant feeling of financial freedom!

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