Eliminate Your Debt, Create a Snowball.

In my last post Compound Interest, He Who Doesn’t Understand it Pays it. I talked about how the interest charged on your consumer debt is robbing you of your future. In this post I’m going to lay out the best system for eliminating all of your debt. If you want to live debt free follow this simple plan.

  • Your payoff accelerator – Determine an amount you can spare each month to start prepaying your debt, this is your payoff accelerator. Ideally this should be 10% or more of your take-home pay. If that’s not possible then do what you can. If you need ideas on how to save a little extra to com up with money that you don’t have 7 Money Saving Tips – Use These Ideas and Your Money Problems WILL be Solved!

 

  • Focus – Start with the debt that has the smallest balance. Add your payoff accelerator to the amount that you’re currently paying on that debt until it’s paid off.

  • Roll your snowball downhill – Once you have your first debt paid off, start paying off the next debt by using both the payoff accelerator and the monthly payment from the first debt paid off to start working on the next debt.

  • Gravity will keep the ball rolling – Now that you’ve paid off a couple debts and have added both monthly payments to your payoff accelerator continue the process until you’re debt free.

For the average household to become truly debt free (including mortgage debt) this process will take seven years or more depending on a variety of factors. Be patient, stick with it and most importantly avoid buying things with credit. This is where using a budget comes in handy, if you’re still living beyond your means you’ll never get ahead.  You should consider using a budget. Previously I did a 3 part series on creating a budget. Visit the budgeting category on right-hand toolbar for more information, or start here Jump your mental hurdle.

Leave a Reply

Your email address will not be published. Required fields are marked *