On your journey to financial freedom, you’ll eventually come to a place where you must account for bad decisions you’ve made in the past. To get through it, you need to find the best way to pay off your debt.
Heavy debt loads can cause a lot of financial struggle and take up an enormous amount of your monthly income. They can also trap you in vicious cycles of borrowing. On your road to freedom, debt can be the biggest giant standing in your way.
Fortunately, though, there is a way to defeat debt. It requires a lot of hard work, sacrifice and commitment.
And it will change your life.
Today, we’re going to learn the Debt Snowball method of paying your debt. My wife and I used this decades-old system to get out of debt, and it can help you find freedom too.
Here’s how the plan works: You’ll need to use a solid budget to organize your spending, and make sure you’re spending less then you earn. You’ll use this surplus to make accelerated debt payments in a targeted, systematic way.
There are five steps in the Debt Snowball process. We’re going to go through them individually to help make it simple.
But first, I want to tell you about Stress-Free Finance, a free program we have created to help you make sense of your overwhelming financial life. This five-part video series has short, simple lessons to help you solve money problems so you can stop worrying and build a better future.
Here’s a preview of the free video series:
Now, back to the topic at hand:
The process I’m about to describe is the best way to pay off your debt. Here are the five steps you need to take to make it happen.
1) Pick a strategy.
There are two schools of thought about how to pay off debt. Some people think you should pay the smallest balances first, and others say you should pay the ones with the highest interest rate first. There are valid arguments for both. But unless you have a few debts with extraordinarily high interest rates, you’ll probably be better off by focusing on your smallest debts first.
2) Pay the minimums.
If you have multiple debts, make the minimum monthly payments on all of them. )These payments should already factored into your budget.) Paying the minimums won’t get you out of debt quickly, but it will keep your accounts current and help you avoid penalties and fees.
3) Target one debt.
Use your budget surplus to make additional payments on the debt at top of your list. The more surplus you have, the more quickly you’ll achieve a zero balance. Use any extra income you get to pay off this debt even faster.
4) Grow your snowball.
Once your first debt is paid off, you can erase it from your budget. This increases the amount of surplus you have to work with. Now, when you move on to paying your second debt, you’ll have more money at your disposal.
5) Repeat the process.
Each time you pay off a debt, erase it from your budget, increase your surplus and move on to paying the next debt on the list. Over time, your snowball will grow quite large, and you’ll be able to make big payments on your final debts until they’re gone for good.
Depending how much debt you have, your payoff process could several years. But as you watch your balances shrink down to zero, you’ll pick up momentum and to plow through until you reach your destination – complete financial freedom.
You can get there, I promise. You just have to be willing to put in the work.
