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5 Things You Shouldn’t Do To Pay Off Debt

Hey, friends!!  Today we have a guest author, Jason, from over at Celebrating Financial Freedom. He’s here to give us a bit of advice about how to pay off debt, and to share with us the new financial freedom training course he’s launched on his site.  Welcome, Jason!

pay off debt

I HATE DEBT! If you were to ask anyone that knows me well, they’d quickly tell you that I’m all about getting out of debt and staying out.

But hey, there are a lot of ways to get out of debt.  Some are intelligent and well thought out, and some just aren’t.

Today I’ll warn you against some of the common ways that people try to get out of debt that can put you in a much worse position than where you started.

At the end of the post I’ll also show you a great new resource for changing your financial life forever!


5 Things You Shouldn’t Do To Pay Off Debt

So let’s get this education train rolling.  Here are 5 ways you should not try to pay off your debt.

  •  Taking Money Out of Your 401k or IRA-  This one is extremely terrible because it avoids building any financial discipline and doesn’t change any habits.  Even worse, you also get heavily penalized for withdrawing that money from a retirement account.  For example:  want to pay off $20,000 in debt?  You’d have to withdraw almost $31,000 to cover taxes and penalties to do it.  Plus you would be robbing from your future to pay for present problems.  In the long run, taking money out of retirement accounts to pay off debt can actually end up costing you hundreds of thousands of dollars.
  • Take Out a Home Equity Loan-  So you borrow money on your home to pay off your car payments, your credit cards, your vintage ceramic kitty collection, etc.  All you’ve done is transfer the debt from one place to another.  Now you’ve put your home on the line.  Guess what?  Once again you didn’t change any habits. So you’ll probably end up extending that home equity loan and taking on even more debt now that you got those others “paid off”. 
  • Paying Off Credit Cards, But Not Changing Habits-  Paying off your credit cards is a great start toward eliminating debt from your life.  But if you don’t practice permanent behavior change along with it, you’ll end up on the debt train once again.  I always recommend completely ridding yourself of those evil plastic demons of debt.  You just don’t need’em.  If you have them available you will use them again.  So burn’em, shred’em, or vaporize’em with an Argon Laser.  Do whatever it takes to get them out of your life!
  • Filing for Bankruptcy-  Most people don’t get in debt deep enough that they can’t work their way out.  Filing bankruptcy can be a terrible decision that can follow you for up to 10 years.  It can make it much more difficult to rent or buy a home, and in some cases it can even keep you from getting a job.   Many potential employers make it a practice to check your credit score as part of their hiring process.  If you’re deep in debt to the point that you think you can’t get out, find a reputable debt counselor instead of a bankruptcy attorney.  Either way can be a tough road, but working your way out of debt with a rational plan (and changing habits in the process) is always better than bankruptcy in the long run.
  • Using Emergency Funds-  If you’ve had enough financial discipline to save up decent sized emergency fund, that’s awesome!  You’re way ahead of the game compared to most people.  It can seem like a good idea to pay off your debt with emergency fund money that’s just sitting idle, but don’t be tempted.  Your emergency fund is an insurance policy that keeps your finances intact when financial setbacks happen (and they always will). Using emergency funds to pay off debt leaves you vulnerable and exposed.  Besides, if you had enough discipline to build an emergency fund you can master the discipline to get your debts paid off over time.


Getting Out of Debt Involves 3 Things

There are a few good ways and a lot of bad ways to get out of debt.  The best ways always involve:

  • a change in habits,
  • a change in priorities,
  • and a change in mindset.

The bad ones don’t and will usually end up biting you in the behind eventually.

So as you resolve to start down the road to debt freedom, remember these three characteristics I just mentioned and don’t lose your brain and fall into one of the five traps.

Your future will thank you for it.


I Can Teach You How to Do It The Right Way

By the way, if you really want to change your financial habits and get out of debt permanently, you may want to check out my Celebrating Financial Freedom online course.

The Celebrating Financial Freedom course is about 5 things:

  • How You Are Manipulated to Get Into Debt, and how it affects your freedom, your happiness, and your future.
  • The Spiritual Aspects of Money–  How your money mentality affects every aspect of your life, and how it can add to, or take away from your spiritual walk.
  • Getting Out of Debt–  The 5 step process that will lead you to debt freedom and keep you there.
  • How to Get On The Same Page With Your Spouse About Money-  Finally eliminate disagreements about money.  You will learn how to work together and understand how your spouse thinks about money.
  • How Handling Your Money The Right Way Changes Not Just Your Family, But The World as a Whole-  Sometimes in very surprising ways.


Got a question about this post or need advice about your financial situation?  Shoot me an email, I’m always glad to help!

Question:  Have you made any dumb mistakes while trying to pay off debt?  Leave a comment and tell me about it.


“Dr. Jason Cabler is a Christian personal finance blogger, author, and speaker.  He teaches how to get out of debt and live a debt free lifestyle through his Celebrating Financial Freedom blog and self study course.  His new book “How to Budget- The Quick and Easy Guide to Making a Budget That Works” is now available (more info here).  He can be reached for interviews or  speaking engagements by email, and can be found on Twitterand Facebook


  1. I don’t think all debt is “bad debt” nor do I think debt should be looked at negatively in every single situation. In some cases it can be used to leverage your money or to invest in yourself, like through being able to attend college. It sounds like this course is saying debt is always bad in every situation, which I totally disagree with.

    • I believe debt is something that has to be handled very carefully. At its core, it puts you at a disadvantage in many ways because you pay more (sometimes much more) in the form of interest and fees than you would have otherwise.

      I don’t think all debt is the same, for instance, a sensible mortgage is not so bad. A ton of credit card, student loan, or car debt is much worse.

      My point is that the less debt you have, the better off you’ll be financially. You have less financial risk in your life, less stress, and more money at the end of the day. Therefore I teach that avoiding debt as much as possible is always a wise move.

  2. Liz says:

    Never take money out of your retirement. I used to prepare individual tax returns and once had a client do that once and he got killed on his tax return with all the penalty he had to pay. I know there are a few exceptions but by all means don’t touch that money until you are supposed to.

  3. We consolidated our credit cards into one low payment years ago, but then continued to use our credit cards to live beyond our means. What a bad move. It wasn’t until we change our spending behaviors that we have been able to pay down our debt.

    • Unfortunately, that’s what a lot of people do. That’s why cutting up the credit cards is important. You have to identify what caused the problem in the first place and change that behavior to be successful.

  4. Mike Collins says:

    I would be extremely hesitant to tap into my home’s equity to pay off debt, but it is a valid option for some people. The key is to change your habits so you never get into debt again. Otherwise you’ll be in a much worse situation as you now have your house on the line.

    • I don’t ever recommend putting your house on the line, especially when it comes to paying off consumer debt. It’s just a disaster waiting to happen.

      Just ask all the people who lost their homes over the last few years, or the ones who are still underwater on their loans. I see a lot of people in that situation.

  5. I worked at a bank right out of college and was always amazed to see the scores of people walk in for a Home Equity Loan only to walk back in to do the same thing 12 months later. While they didn’t change their habits, the underlying issue is that they did not change their attitude or outlook on money – those priorities as you put it. If you don’t change those then even your best laid plans will likely fail as well. Good post Jason!

  6. While I would never advocate getting rid of your emergency fund entirely, I do think it shouldn’t be so big that you are letting money sit in a low interest account while your high interest credit card is being paid off a little at a time. I agree though with what you said about the 3 mindsets you need to get out of debt though!

    • Usually I recommend a smaller emergency fund while getting out of debt. Then, once the debt is paid off, build a larger one.

      I believe it’s good to have a substantial fund in place so you won’t be tempted to go back to using credit cards if something does happen.

      I know it doesn’t necessarily feel good to have that money just sitting there, but it can feel good to know you have some protection when an emergency does come up. It’s all a matter of perspective.

  7. Mark Ross says:

    Yeah. Those are really some of the things you shouldn’t do to pay off debt. I think one should decide to change himself first before he make any decisions that could possibly make things worse.

  8. The one point that stood out for me is when people pay off the credit card then load it right back up again. If we are failing to see why it’s important not to use a credit card if it can’t be paid in full at the end of the month then we should tuck them away because it’s only going to be a debt trap for most. Great post.

    • Even people with the best of intentions can get into credit card problems. They are just so easy to use that it becomes easy to overspend without even thinking about it.

      I always recommend “going naked” and just not using them at all. I haven’t had one for years and it’s been great!

  9. I’ve been guilty of transferring credit balances around from card to card without actually doing much to pay them off. But luckily, I’ve never added debt to my mortgage. As someone who once had to face a very real threat of bankruptcy (well my husband actually – but we’re in it together), I can say that this is not a decision to be taken lightly and I’m glad we managed to claw our way back to a more manageable situation through other means!

  10. I absolutely agree about changing mindset and behaviors if you have gotten into a debt problem, but I also don’t believe that debt is the end of the world. I believe in good debt and bad debt and “strategic” debt. I would rather see a client take out a home equity line at a lower interest rate then carry any credit card debt or potentially higher interest rate loans.

  11. Kay says:

    Changing habits is a big one. It’s the reason why dieting doesn’t work. Even if you pay off all your debt, if you go right back to the old habits you will likely find yourself in debt again!

  12. A changed mindset is an absolute must. Otherwise, you will slide right back into debt at some point. It always breaks my hurt when I see someone fight so hard to reach financial freedom, only to go back into debt. While credit cards definitely make it easy to live beyond your means, I don’t consider them “bad”. They are a tool that is too easily misused. Everyone is different and for some individuals spending is an addiction and credit cards fuel that addiction, so it may make sense to eliminate them permanently from one’s life. For others, if we can understand what causes us to spend and learn how to spend money wisely, credit cards can remain a useful tool.

    • I’ve seen that happen a lot. A person works hard and gets out of debt, then they relax and let their guard down and end up in debt again.

      It takes permanent change and continuing to be diligent even after all the debts are paid off. It’s a lifelong process.

      Thanks Shannon!

  13. Oh, man. My family member has done 4 of those 5 things in the past few years. It is a trainwreck, but luckily he has avoided bankruptcy.

    Great advice. As usual, the hard part is following the good advice once you hear it.

  14. I’ve seen the aftermath of debt on several family members and it’s not pretty or glamorous. The sad part is some of them refused to see the toll it left behind or own up to their role in creating the mess. Recognizing your own responsibility is HUGE and can make a real difference in whether or you not you repeat mistakes.

    • Yeah, it’s a case of putting a major hurt on your future to take care of a present problem. It can make you miss out on hundreds of thousands of dollars of growth over time.

      Thanks for the comment Charles!

  15. I know way too many people who take money out of their 401ks! Someone I know (in their mid-30’s) recently wiped theirs out to pay off debt and put a down payment on a house. It makes me crazy!

  16. #1 is huge! I can’t tell you how often I hear people looking at their retirement funds as a bank account. NOOOOOOOOOOOOO. Especially because you can get slapped with those fines and your robbing yourself in the future.

  17. AverageJoe says:

    I always hated working with 401k participants because many of them would call me right after payments went in.

    “Hey, can I get that money out?”

    “Yeah, you can….but there are some big penalties.”

    ((no questions about the penalties…only:))

    “How long will it take for me to get it.”


  18. Pingback: Week End Round Up #16 » Debt DisciplineDebt Discipline
  19. Yeah, I’ve used my emergency fund to pay down debt multiple times. I don’t recommend it, as we recently went through a pretty big emergency and had to charge it! It’s a vicious cycle without a nice chunk of change in savings!

  20. Charlie @ Our Journey To Zero Debt says:

    I hate debt as well. When you have debt, you are a slave to the lender.

    When I decided that I want to become debt-free, I was very gung-ho about it. I was even going to cash out my 401k to pay down debt. What a foolish mistake that would have been! After a couple weeks and coming down from the gung-ho attitude, I decided to use the debt snowball technique instead.

    Slow and steady wins the race. That’s not to say that I don’t have my moments of wanting to give up, but documenting my own journey and reading blogs such as this helps me stay motivated.


    • Laurie says:

      Charlie, smart decision on your part to leave that 401k put. Slow and steady wins the race, that’s our motto too, although we’re working toward a faster “slow”. 🙂

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