How to Eliminate Debt in Bursts Instead of Incrementally

Most of the time, the standard advice about debt elimination is to pay it off incrementally, over a period of time. We’re advised to be patient, and to hold on tight until the day comes when we pay off our debt.

That’s good advice, and I endorse it — however, many people have trouble doing things gradually. For them, I suggest trying to do debt elimination in bursts.

I’m a gradual person myself, but there are times when long-term goals are difficult for me. I know how intimidating it is to see a huge debt burden staring down at you, and when you calculate how long it will take to pay it all off, you have two or three years ahead of you.

I also know that I work better in bursts. I have trouble with long-term projects, but I can cram out an article or a one-day assignment easily. If I break things down into chunks, I’m more likely to get it finished, especially if I can use a big burst of energy to complete it all at once.

That concept of productivity can be applied to debt, if that suits your style better. Here are a number of strategies for doing so — pick and choose the ones that apply to you.

  1. Taxes. This is an obvious one, but if you get your tax refund, drop it on your debt. This can often be $1,000-5,000 for a lot of people, so you can erase a goodly number of debts with a refund. Now, a strategy that will be controversial: increase your tax withholding deduction so that your tax refund each year is bigger. Yes, your money would be better invested in something that actually earns dividends, but remember, this plan is for people that have problems with saving and investing and paying off debt incrementally. If Uncle Sam is taking your money each paycheck, you can’t withdraw it until you get your refund.
  2. Bonuses. Get an annual bonus at work? Don’t spend a dime. Pay off debt.
  3. Gifts. This will sound tacky, but if you have a special occasion coming up where people would normally give you gifts, tell them that a gift isn’t necessary, but if they do give you a gift, you’d like a check to pay off debt instead. If your friends and family know that you’re trying to get out of debt, and you explain your plan, they will understand. If you’re not comfortable with this strategy, that’s OK — just put any money you do receive towards debt.
  4. Ebay. OK, now we get into the serious stuff. In the middle of your living room floor, start piling up all of your possessions that you don’t actually use. Exercise machines, extra computers or televisions or stereos or furniture, bread machine, juicer, extra clothes and shoes, books, CDs and DVDs, paintings, collectibles, decorative stuff, everything. Make a huge pile. Now put everything on Ebay and sell it all. If anything doesn’t sell, you can hold a garage sale or something. Now take all the cash you earned from selling your junk, and pay off debt. Then look around your house and feel awesome about the lack of clutter.
  5. Car. We’re getting more extreme now, but you can sell your second car and just live with one car, using the proceeds to pay off debt. If you need a second car, buy a second-hand, smaller car and use the difference between the selling price of your old car and the buying price of your new (used) car and pay your debt.
  6. Home. If you have equity in your home, sell it and rent or buy a smaller home. With all the stuff you sold on Ebay, you don’t need a big home anyway. Use the profit for debt reduction.
  7. Freelancing. If you can find an extra hour or two each day (wake early, work during lunch, or find some time after work when you would normally watch TV), you can do some freelance work on the side. If you get a recurring assignment — for example, I write an article for a publication every week — instead of having them pay you every 2 weeks or every month, have them wait until you’re owed $1,000 or more. Then use the big payoff for debt.
  8. Blog. If you have a blog, and you’re earning income from ads, go to your ad services (like Google or Yahoo or Amazon) and tell them you don’t want to be paid until your earnings reach $1,000. Then use those payments for debt. Don’t spend your blog earnings.
  9. Winnings. If you go to Vegas and win big, or win the state lottery, or clean up in your weekly poker game or bingo, put it all on debt. Of course, if you win the state lottery, you probably won’t be worrying about debt anymore, but hey … I’ve heard of rap stars blowing $30 mil and ending up in debt, so just be careful.
  10. Robbery. I don’t advocate a life of crime, but if you happen to rob a bank or a casino (hey, I just watched Ocean’s 13), be sure to allot at least 80% to debt.

Leo writes about simple productivity at Zen Habits. For more on debt reduction, productivity, simplicity, GTD and health, see his site or subscribe to his feed.

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There are 36 comments to "How to Eliminate Debt in Bursts Instead of Incrementally".

  1. says 25 July 2007 at 06:19

    In my opinion, the best way for the average person to pay down debt is to make it automatic. Set up an automatic withdrawal schedule and stick to it. If you wait to save up a large amount, then pay it down, there are no guarantees that you’ll use the money for debt.

  2. jos says 25 July 2007 at 07:00

    wooo, some of those are pretty extreme, well no most are… i def agree with the tax refund if you get one but selling all your stuff? that would make me and im sure many others find and excuse to get new stuff… getting rid of your car? how are you going to get to work?
    sell your house and rent? wow!,i dont know about that one

  3. guinness416 says 25 July 2007 at 07:15

    I don’t know … the last time I robbed a casino I put 90% towards debt. Was that too much?

  4. alison says 25 July 2007 at 07:21

    as someone who abhors debt and has a hard time waiting to pay it off, i thought this was a great post. i have done or at least considered a lot of these things and while it can be hard to part with an entire refund check or bonus or extra tv, it’s worth it entirely in the end.

  5. JerichoHill says 25 July 2007 at 07:22

    Here’s a simple solution.

    Most folks are paid bi-weekly. This means that there are 2 months out of the year where one receives 3 paychecks.

    So if you can live on 2 paychecks a month, you will have 2 extra paychecks a year.

    I don’t have any debt besides my home, so I used those paychecks to fund my IRA

  6. m.g. says 25 July 2007 at 07:30

    I am assuming that you mean to still pay incrementally in the meanwhile, and not just forgo payments until you receive some kind of windfall? If not, then I REALLY disagree with this.

    As for the notion of putting every single spare penny towards your debt — I hate the idea of “how dare you spend money on ANYthing when you’re in debt?” You still deserve to live your life. We’ve done the analogy to dieting before; people can’t handle the all-or-nothing mindset for any significant period of time. You’ve already got an incremental debt-payment plan in place, so why not use a little of the extra cash for things you want? At least you’re paying cash for those things now instead of going into debt for them. And knowing that you’ve decided ahead of time you CAN spend X% of this cash should help curb the temptation to spend all of it.

    And just one thing on the subject of gifts — I really strongly feel that it a) is extremely tacky to ask for cash, even from family, and b) should you receive cash anyway, it should be spent with the spirit it was intended. When I give money as gifts to my friends in debt, I do it with the intention of letting them off the hook for a bit and getting to go out or get something they really want and not feel guilty about it. It would not necessarily make me angry, but probably rather sad to find out they spent that money on bills. (which is why gift cards are so lovely)

  7. Cheap Like Me says 25 July 2007 at 07:34

    Even better than eBay is to try Craigslist first – no listing fees and no shipping headaches!

  8. Liz says 25 July 2007 at 07:54

    I don’t know about others, but when I get a gift card I feel absurdly guilty spending it, because they are usually to places I wouldn’t waste my money anyway (department stores and restaurants) and I would feel guilty using them. When I get money as a gift, I am extraordinarily grateful to use it to pay off debts or to put towards investments. Especially small amounts, since no one ever coordinates their efforts enough to make all the $20 gift cards be from one place, so you can get something you WOULD have bought yourself, like an appliance.

  9. Amber Yount says 25 July 2007 at 08:00

    Hmmm I’ve been planning how to rob Luxor for years, but I can’t get past those lasers!!

  10. bree says 25 July 2007 at 09:08

    We used this strategy and went from about $35k in credit card debt to $6k in seven months. We decided in January to pay off our debt as quickly as possible, so we snowballed it, made more-than-minimum payments on everything each month and one big one on the highest interest debt, and applied windfall money in the same way. This year we ‘found’ money when we finally filed old tax returns and successfully lobbied for a delayed raise to be retroactive at work, in addition to the usual annual bonuses.

    The key really is to earmark windfalls for debt slayage, while continuing to pay it off incrementally. For those of us who have trouble sticking with long-term plans, the big bursts of repayment give you immediate satisfaction, which provides the inspiration to continue with those monthly payments.

    When we started, I had hoped to pay off the debt in three to five years. We’re now looking at cleaning it all up within a year.

  11. Annie T says 25 July 2007 at 09:25

    Good ideas, but I disagree about waiting to get paid from freelance work. Most freelancers I know are stuck waiting for months to get paid in the first place. And in dilly-dallying to get paid for a recent $1,000 job… the magazine folded. I’m never going to see that money.

    Freelancers, do not wait to invoice. Invoice right away!

  12. MVP says 25 July 2007 at 10:03

    Some good thoughts, but I don’t agree with asking for checks rather than gifts for special occasions. That’s just plain rude. Plus, I always liked receiving gifts when I was in debt-payoff mode because I couldn’t afford to put my money toward any extras.

    Jos and m.g., if you want to get out of debt, you’ve got to get serious. We were 40K in the hole, and we got out of it in 18 mos. by selling stuff and working extra jobs. No, we didn’t sell our cars or house because we both have 11-year old cars and our house is modest. But we would have if we had expensive cars and a house we had equity in.

    I absolutely wouldn’t suggest holding off on getting paid for freelance work. Those of us who do such work know it’s sometimes a struggle to get them to pay you at all, so I’m happy they even remember they owe me for my work. Annie T’s spot on.

  13. Lulu says 25 July 2007 at 10:38

    I did a burst where I cashed out my savings account and paid off a loan. The savings account was getting way less interest than the interest I was paying on the loan. I got rid of the loan but have no savings so I got a lot of flak for that from people. I think I made the best decision at the time though.

  14. Jess says 25 July 2007 at 11:22

    Applying larger chunks of money (windfalls, bonuses, final payments for freelance projects) towards credit card debt has worked out for me so far.

    My interest rates were very high, and even paying above the minimum it felt like I was barely keeping afloat. Now I’ve got some breathing room and it feels like I’m finally making progress.

  15. Moneymonk says 25 July 2007 at 11:23

    If you go to Vegas and win big. What are you doing in Vegas gambling if you are in debt.

    I like the incremental approach. Freelance work and others takes time.

    I say do both keeping paying on the debt and pay more whenever possible

  16. Ron says 25 July 2007 at 12:21

    We most definitely do both! We are working incrementally to pay down debt using the debt snowball method, but whenever we get any sort of windfall it gets thrown on top as well. It always feels very good to be able to occasionally drop a large amount on the debt and really see it go down.

  17. Andrea >> Become a Consultant says 25 July 2007 at 12:24

    Getting rid of your second car is getting extreme? I don’t think so. Most people don’t need two cars. They just need to change their lifestyles.

    As for freelancers, invoice immediately. Don’t wait. Too many freelancers wait till “enough money” has accumulated. Many of these people never get paid. Freelancers should get a deposit before even starting work and they should invoice at key milestones, not at the end of a project. See my article at

  18. Elissa says 25 July 2007 at 13:22

    As others have said, ALWAYS invoice ASAP! If necessary, open a separate savings account and just horde your invoiced money in there until you get a decent chunk of change you can use to pay off a debt. If you wait to invoice, you’ll never see that money (I made the poor decision of doing that once… I’m out $700… for now).

    I’m currently working to accumulate enough money to pay down or off many many of my debts. Snowballing is nice, but if I can drop extra money into a savings account and let it pile up I’ll be able to pay off small remainders and get my snowball effect to move faster more quickly.

  19. Adam says 25 July 2007 at 14:13

    What tax form and category would loot from a casino robbery go under?

  20. Leo says 25 July 2007 at 14:21

    “What tax form and category would loot from a casino robbery go under?”

    I’d guess it would be under legal services. 😉

  21. Steven says 25 July 2007 at 16:08

    Great post!

    It took me four years to donate just about everything I owned to a couple of San Francisco chairity thrift shops. The IRS allows only so much each year and I maxed out the yearly deduction by giving away 22,000 books and 30 years worth of “stuff”.

    I used the tax refund each year to pay off my credit card debt.

    I can’t begin to describe the satisfaction I felt on December 30, 2005.

    Debt free for the first time in my life.
    And the personal satisfaction of two charities helping me spread my financial spirit around the community.

    Everything I “truly love” fits into six boxes.

  22. jos says 25 July 2007 at 18:55

    oops my mistake i didnt realize it was a 2nd car… and i guess i disagree with selling stuff and selling home to rent because i hardly have any “stuff” in the first place and currently rent and despise it… i guess if you are serious about paying off debt you need to do some “out there” things… extreme for for the average person…

  23. Desiree says 25 July 2007 at 20:18

    I disagree with MVP about asking for money instead of stuff being rude. What is rude is other people insisting that you accept stuff that you don’t really want or need because they want to BE cheap about their gift without having to LOOK cheap. Which brings me to my next point…people can be very ungracious about a request for a money gift even when they know it is for something admirable. We asked for money to contribute to my daughter’s college savings plan we set up instead of more toys (which we have too many of anyway) for her first birthday. Many people complained and did what they wanted to anyway.

  24. CatWhisperer says 25 July 2007 at 23:25

    Great post and great ideas. Just to re-hash the well known. Burst payments, above and beyond the incremental (and, in theory, above and beyond the minimum), will knock down the principal. This means that ‘the math’ plays the enemy to a lesser extent after the burst than before (from the debtor’s perspective, anyway). I suppose it is for this reason I find it oddly exhilarating to make burst payments. With the extreme suggestions dotted with humor, the author really keyed into that exhilaration, at least for me. These debts can seem insurmountable, so extreme action (enabling the bursts) may be just what is needed, and they’re fun too, but only for folks who are ‘ready,’ I suppose.

  25. Alex Ion says 26 July 2007 at 05:54

    Those are pretty good ideas, no matter if they are extreme. I also agree with selling the other car. The article is really good!

  26. Kelly says 26 July 2007 at 06:47

    I will admit that I’m one of those losers who is horrible at saving money. But I’ve found so much personal gratification in burst payments that I’ve been saving more and more to do such things.

    I totally follow points 1, 2, 4, 5 and 7. I’ll be having my third rummage sale first week of September. Awww Yeah….

  27. MS says 26 July 2007 at 08:24

    It’s the incremental debt reduction that creates the lifestyle changes needed to stay out of debt. If someone is running up debts and gets an inheritance that pays it off, then they are likely to continue the behavior that got them into debt and find themselves in the same position again. I agree that the windfalls should go toward the debt and could make up more of the reduction than the month-to-month contributions.

  28. Beavis says 26 July 2007 at 08:38

    What kinds of freelance services are in greatest need out there? I certainly like the idea of doing freelance work to earn extra cash for debt-reduction, but I would want to make sure I’m fishing in the right body of water, so to speak…

  29. REI1AB says 26 July 2007 at 10:08

    @Jos: The selling your house and renting is a good idea for some people, not all. I have read (on here) instances where each are better than the other. On the upside, if your house has appreciated, you could keep the money and use it towards the rent.

    That being said, it is my own personal opinion that you only do this before you have kids, or after they leave. Then again, if both of you have retired, you could move to someplace cheap and still have enough to invest in some real estate and rent out a couple places.

  30. Martin says 26 July 2007 at 12:48

    This is exactly how I paid off my credit card which was under a credit counseling service.

    I set up automatic payments once a month. And then when I did get extra money, I sent it in.

    Every time I earned $35 from eBay. I sent that $35 in. $35 may not seem like much. But it not only takes off $35 it also takes off the future interest that would have been applied to that $35.

    I paid off a little over $11,000 in 3 years doing this. And for one of those years I was in school. With out those “bursts” I’d be paying it off for another 4 four years, and paying more money in the long run.

  31. MVP says 26 July 2007 at 14:25

    Desiree, we’ll just have to agree to disagree on this one. I don’t see much of a problem with suggesting options other than more toys for your kids, but if an adult expects ONLY a particular gift or cash, it’s totally rude. A gift-giver can offer any gift they want. It’s up to the recipient to be polite and graciously accept it – unless of course it’s a totally inappropriate gift. The recipient is then free to discreetly get rid of the gift if it’s not something they want. For those in our family who don’t have a lot of money, we sometimes give gift cards to practical places where they can buy a variety of items. If they turned around next year and specifically asked for cash instead, I’d be insulted. It’s outrageous to think it’s okay to tell people what to give you as a gift! Go earn the money yourself if you want it so badly. But I’d caution you against risking relationships and your reputation among your family/friends over it. You said it yourself that “many people complained” when you demanded people give your daughter a particular birthday gift.

  32. dcr says 27 July 2007 at 23:41

    Good ideas, even if some of them may be difficult to swallow. I think you need to pay the necessities first, then use the money you have left to pay off debt and don’t buy anything that’s not a necessity until you have your debt paid off.

  33. smoothtimb says 31 July 2007 at 12:40

    I disagree with the burst payment idea because you will be spending much more to get yourself out of debt in the end.

    You must understand the time-value property of money, which is what gets us into debt in the first place.

    Having money at a given time has value, that value along with the risk involved is used to compute interest.

    Having money, and waiting till it is a large amount (while presumably not earning interest i.e. deducting too much taxes and waiting for your return) will actually lose value as you wait to get your return. Not only are you losing the value you could be earning in interest if it was in a bank account, but also the value of the money as it decreases due to inflation, and the amount of interest you could avoid paying while you are waiting to get your money back!

    Pay off as soon as you comfortably can, don’t wait, it will make you spend much much more. There is NO benefit to bursts other than the happy feeling you get inside which is worth nothing when you realize you are wasting your money.

    The value of money now is almost always always always greater than it’s future value. (assuming a positive growth rate, which is usually the case in our economy)

    PV > FV

    Educate yourselves:

  34. Chief Family Officer says 01 August 2007 at 13:21

    I’m a big advocate of doing both automatic increments and bursts. Although I’d reduce the burst minimum from $1000 to $500.

  35. A.J. - says 09 August 2007 at 00:36

    The first burst that needs to happen is to burst all of your credit cards into flames…

    I watch time and time and time again as people begin to pay off debt, make major strides and then go buy or lease a new car or put a new computer system on credit or take out a home equity line for a remodel or something. It sort of defeats the purpose. I know, I’ve done it myself several times 🙁

  36. Kathy says 12 August 2007 at 07:12

    > A.J. – Says:
    > August 9th, 2007 at 12:36 am

    > The first burst that needs to happen is to
    > burst all of your credit cards into flames…

    I totally agree with this one. While credit cards are becoming unavoidable in the current system, we’ve managed for the past 10 years with a Visa debit card, so we get the convenience of being able to pay automatically or over the net/phone without going into debt to do it.

    I also think that while you can ask for cash towards a certain type of thing – I think the college savings plan is a great idea – you have to be very careful how you word the request, and not be ungracious to those who bring a gift instead. It’s very daunting to be asked to give a gift of money; your gift will be instantly compared to all the other gifts and if you don’t give as much as others you look bad.

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