Step 1: List your debts from smallest to largest regardless of interest rate.
Step 2: Make minimum payments on all your debts except the smallest.
Step 3: Pay as much as possible on your smallest debt.
Step 4: Repeat until each debt is paid in full.
The debt snowball has been the most effective method our family has experienced to gain traction against debt. The debt snowball allows you to experience small wins and gives you a sense of accomplishment as you pay off your various debts.
If you had a car debt of $30,000, a Visa balance of $1,000, a MasterCard balance of $3,000 and a consolidation loan of $50,000, you would, REGARDLESS of interest rate, order them smallest to largest. You would throw as much as you could at the smallest debt, paying ONLY minimum payments on the other debts, adding the minimum payments from the paid-off debts against the next debt in line.
Feel free to get a side hustle or extra job in this process and PLEASE halt retirement savings during this 24-30 month period of time - you'll make those contributions up later in Baby Step 4-6!
Keep in mind that if you tried to tackle your consolidation loan first, you would be completely out of energy about one eighth of the way into the balance.
You need the experience of being victorious over small debts in order to be able to stick out Baby Step #2 - this is a “slow cooker” mentality, a patience mentality - not a microwave mentality.
The microwave mentality got you into debt, the slow cooker mentality will get you out!
“You can wander into debt, you can't wander out. You have to get really mad, really intense, and really focused to get out of debt.” -Dave Ramsey
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