Originally posted on Money with Merne’s Facebook Page on March 1, 2017:
So, are you ready to pay off all that debt? What’s the best strategy to go about that? The Debt Snowball, that’s how!
Make a list of your debts including the balance, the minimum payment, and the interest rate. You should have already created a budget where you included all the minimum payments for these debts and hopefully you have some extra money left over to accelerate debt repayment. Which debt do you attack first? There are two schools of thought:
- Go in order of interest rate or balance. Paying off the highest interest rate debts first will save you money in the long run but paying off from smallest to largest balance will build you up mentally.
- If you need to see progress and achievement to keep you motivated, then pick off those lower balance debts first and kiss them goodbye!
With either method, once you put the extra money each month toward ONE balance (while paying the minimum for all other loans) and pay off that loan, ALL of that money can be funneled toward your next highest loan.
Here’s an example:
Student Loan – $150 per month
Car Loan – $250 per month
Credit Card – $500 per month
Extra – $500 per month
Attack the credit card first by paying $1000 per month (credit card minimum $500 + extra $500).
Once paid off, pay $1250 toward the car loan each month.
Once paid off, pay $1400 toward the student loan each month.
You can see how the last loan will be paid off at a quick rate because you’re throwing so much money at it per month! This is a tried and true method for debt repayment!
