*Update* Since this post we’ve paid off the entire $13K in just Five Months and to date have paid off $36,309 of our debt. Keep reading below to find out our process. To read bout more of our success at paying off debt click here*
This past March when I told my husband that I wanted to pay off over $30K in debt by January 2016 he laughed at me. He wanted me to “show him the receipts” as they like to say. I honestly didn’t have anything to show him, all I had was a burning desire to make it happen and to prove to myself that I could do it and that together we could change our financial situation. The first thing I did was create a new budget. My favorite site to use and one that I recommend to absolutely everybody is Dave Ramsey’s EVERYDOLLAR.COM. This website offers a FREE budgeting tool that makes sure you are giving every single dollar that comes into your life a home. There’s no more asking where my money went, or what did we spend that on because you already told the money where to go at the beginning of the month. Here’s what a sample of our Everydollar budget looks like.
The second thing I did was write out my Debt Snow Ball Attack Plan, which is a popular method used by Dave Ramsey in his Total Money Makeover Plan. Paying off debt via the Snowball method is a great way to accelerate your payments and get debt paid off faster. For every debt you pay off you roll the minimum balance you were paying into the next debt. I’ve shared with you the first part of our debt snowball plan below, as the second part contains our mountain of student loans. I listed our debt from smallest to largest, disregarding the interest rates. If we were to work the debt snow ball month to month this is how it would work. Let’s say were starting in January. The smallest debt on the attack plan is Amazon with a balance of $90. Instead of paying the minimum of $25 this month we go ahead and pay the $90 in full leaving us with “0” remaining payments. In February, we would now move on to the second debt on the list being Sunglass Hut. The minimum payment due is $25. With the debt snowball, we would roll the $90 freed up from paying off Amazon in January into the $25 minimum payment for Sunglass Hut. By doing this, we now are paying a minimum payment of $140 instead of $25 which means you will pay this bill off in 1.5 months. Now, let’s move on to the next bill which will, in theory, start in April. The bill for April is Best Buy and the minimum payment is $25. Instead of paying only $25 you will snowball the money freed up from paying the other bills into the $25 and now pay $165 that month as the minimum payment. Continue this each month until you’ve completed your Debt Snowball Attack Plan.
Now you may notice that in March after paying off the Sunglass hut bill you had extra money left over. Instead of spending that money or putting it into savings you can immediately start on the next bill. For instance in March you would have had $19 left over from paying off the Sunglass Hut Bill. Add that $19 in with the $25 minimum payment for Best Buy and start paying off the balance earlier than what your Debt Snowball Attack plan has designated. This is what we call working the “Accelerated Debt Snowball Attack Plan”. In the Accelerated Debt SnowBall Attack Plan you are throwing all the extra money you can earn at your debt. This is where you get mad at your debt and do whatever it takes to get rid of it as quick as possible. Using the accelerated method we went from a 35 month Debt Snowball Attack Plan to a 4 Month debt Snowball Attack Plan. In the first Broke on Purpose post I spoke about how I was able to pay off 4.5 credit cards in one month. I did this by taking all the money I was earning part time and throwing it at my debt. I even raided a side savings account that I had and threw that money at the debt. My whole focus was to get rid of as much as possible.
The accelerated method is great for people who really want to kick things into high gear and see movement on the debt snowball. Every little bit counts, it doesn’t matter if it’s $10, $20 or even $50 dollars. If you do the math you’ll see how much momentum your debt snowball can quickly get.
The order of your debt may also change. As I mentioned before we always list our debt in order from smallest to largest and work the snowball method accordingly. Notice in our Accelerated Debt Snowball Attack Plan we paid off our Car Loan before we paid off our Upromise Credit Card. This is because the balance due on our car ended up being lower than what we owed on the Upromise Credit Card (we were paying $800 a month instead of the minimum of $329), and so it went first regardless of interest rate.
Creating a Debt Snowball attack plan is the easy part. The hard part is not becoming overwhelmed by how many months it may take or the total amount of your debt. No one ever actually follows their original Debt Snowball Plan. Once you get started you’ll begin on the accelerated plan almost immediately. Your payoff date may not be as early as others and you may not be able to throw as much as you’d like to at your debt, but remember this is a marathon and not a race! You can do this!
Looking to create your own deb tsnowball attack plan? Grab the Broke on Purpose Financial Worksheet Kits here!