There are many of you out there that are overwhelmed with your debt. I know it can be frustrating when trying to repay the debt that you owe, especially when you have a high interest rate. Today I want to introduce to you a debt repayment plan that is really simple to follow, you will just need to commit yourself to this plan.
This debt repayment plan that I am about to introduce to you is not new or something I have made up, it is a well know plan. Some of you may have heard of it before, especially if you know who Dave Ramsey is. This debt repayment plan is known as the debt-snowball method.
Here is how you get started on repaying your debt and on your way to becoming debt free:
- The first thing you want to do is list your debt from smallest amount owed to largest amount owed. (Don’t worry about interest rates.) For example: 1. Credit Card #1 – $150.00 2. Credit Card #2 – $300.00 3. Student Loan – $800.00 4. Auto Loan – $5,000
- Then want you want to do is make the minimum payment on all of your debt that you owe, except the smallest debt that you owe. The smallest debt you owe you should try to at least pay double the minimum payment. (For example, if your minimum payment is $25.00, then pay $50.00.) If you can, pay more than double. The key is to tackle the smallest debt you owe.
- After you have payed off your smallest debt (#1 on your list), then you move on to the next debt that you owe (#2 on your list). What you are going to want to do with this debt is use the amount that you were paying on debt #1 (plus the minimum payment that you were already paying on debt #2) and use it on debt #2. For example, if you were paying $50.00 a month on debt #1, then you would use that amount on debt #2. Also, if you were paying $25.00 a month on debt 2, then you would add that amount to the $50.00 that you were paying on debt #1. So, what you should be paying on debt #2 (according to this scenario) is a total of $75.00 a month. Just like we did with debt #1, you should pay the minimum payment on all the debt that you owe, except of course debt #2.
- After you have payed off debt #2, you are going to want to move onto debt #3. We are going to use the same formula that we used for debt #2. For example: you are going to use the $75.00 that you were using to pay debt #2 and apply it to debt #3. You are also going to add the minimum payment that you were making on debt #3 (for this scenario we are going to say the minimum payment that you were making on debt #3 is $60.00) and add that to the $75.00. So, the total amount you should be paying on debt #3 is $135.00 a month. Also, you are going to make the minimum payments on all of the debt you now owe, except for debt #3.
- After you pay off debt #3, then you will repeat this formula that we have been using in the scenario, until all of your debt has been paid off.
I think by now you probably understand why people call this debt repayment plan, the debt-snowball method. It is a simple formula to follow and if applied correctly it can help you get out of debt.
I encourage you all to start using this method today and tackle your debt!
I will end with this quote from Suze Orman, “The only way you will ever permanently take control of your financial life is to dig deep and fix the root problem.”