I remember getting into debt quite quickly when I was out of my parents house and new into adulting. I kept getting brand new things because I could "afford it" meaning that I could squeeze yet another payment into my month.
It finally came to a point of me attempting to squeeze blood out of a stone with my budget!
What I was doing wasn't working so I Google'd the fastest or the best way to get out of debt. There were millions of opinions out there. Anything from pay off the highest interest rate first, the debt snowball, the debt avalanche, loan consolidation, lower interest rates, etc. The list just kept going.
After years of trial and error, I finally found the fastest way to get out of debt and that is with the debt snowball method.
"What is a debt snowball you may ask?"
This is the method I learn't from Dave Ramsey and his teachings. I successfully used this method when I was getting out of debt and now teach pass this knowledge onto my clients.
The term debt snowball simulates a snowball rolling down a hill. As the ball rolls down the hill, it picks up more snow on the way, it grows bigger and bigger over time.
When you are getting out of debt, you are going to want to use this method vs any other method, why? because it works!
The first thing to do when you want to get out of debt is list your debts from smallest to largest, when doing so disregard interest rates, which debt is your oldest or which company is hassling you the most. At this point, you should also have a detailed budget, where every dollar of your take home pay is allocated to expenses. This will allow you to understand how much money you have left at the end of the month after expenses and making the minimum repayments on all your debt.
You may be wondering why wouldn't you list the debts in order of interest rates? Wouldn't it be mathematically smarter to pay off highest interest rate first?
Yes, mathematically you would be correct. BUT, if you were doing math, you wouldn't be in debt in the first place..., stick with me it will all become clearer!
Once you have your debts listed smallest to largest, the smallest debt becomes your starting point and this debt gets paid off first. So taking whatever money was left after completing your monthly budget, pay that as an extra payment on top your minimum payment until that debt is gone. Don't be discouraged if this may take a few monthly cycles. You are taking steps in the right direction and as I've said this method works.
Once the smallest debt is gone, the amount you had previously allocated in your in your budget for the minimum repayment, plus the money left over from your monthly expenses, can now be added to the next smallest debt and so on. This creates the snowball effect, gaining momentum as it rolls down the hill getting bigger and bigger (or in your case, having extra money for paying off debt).
I highly recommend creating a visual chart of all your debts. This can be hand written or printed and my suggestion would be to place the chart on your fridge door or the mirror in the bathroom. The reason for putting them in places you see everyday is it will be a constant reminder that this is what you are completely focused on - getting out of debt! You will become annoyed at yourself for being in the position you are in, however it will motivate you to get out of debt quickly and make you think twice about spending money on things you don't need.
Having the debts visible allows you to cross them off as you pay them off! This gives you small 'wins' and creates momentum to keep going, while giving you emotional encouragement to to get out of debt. You can still celebrate the small wins, just in a cheap but effective way. Remember you are getting out of debt, don't go and blow a $100 on a celebration dinner. Think of things that you enjoy, how can you adapt them, so that you can still feel like you are being rewarded without spending $$$.
By using the debt snowball method the average person gets out of debt in 18-24 months! When I went through my journey of paying my debt off, I fell within in this average at about 24 months. The debt snowball is by far the hardest part of the wealth building journey. It takes hard work, dedication and sacrifice, but with it also comes a mind shift, where you never want to be in that position again. You may even surprise yourself at how involved you get in the process, it becomes a game you want to win and it is amazing the creative ways you find to save or earn more money to get to the finish line even faster.
Remember you can't spend more than you make and become wealthy!
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