When it comes to paying off debt, we really need to embrace one crucial fact if we want to make progress. The only way to get rid of your creditors is by paying them back. Regardless of what other people in debt say, or what the informercials on radio or TV promise, you need to pay them back. Period.
I know that some people are looking for a different answer, one that perhaps offers an option to not make us accountable for paying off the debt. But I will always be brutally honest with you. If you really want to get rid of it, you need to produce extra money to pay your debt off. That’s the only true way out.
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How To Become Debt-Free Without Gimmicks
Let’s be honest, there are many gimmicks out there that promise people a quick way out of debt. Some promote bankruptcy as the easy way out, which is really not an easy way out and definitely not something I would ever recommend. Others sell you the idea that consolidating debt will help you get ahead. But this is the truth, the only way to pay it off is by having extra cash.
Forget about consolidating, getting a loan to pay another loan, or applying for a zero percent credit card to roll over your debts. None of that does anything to pay down the balance on your accounts. Perhaps on paper, consolidating may save you a little money in interest. However, after combining their debt, many people end up staying longer in the hole and paying a lot more in interest. How is that helpful? It’s not.
If you buy into that garbage, you will be chasing your own tail. Life gets more complicated when you have to keep track of all those accounts, rollover balances, and zero percent interest cards. Instead, we are going to get rid of your creditors ASAP using the debt snowball method.
The Debt Snowball Method Explained
The debt snowball method consists of focusing on paying off your smallest debt first, regardless of interest rates. Keep in mind that getting out of debt is not a numbers game, as many think, it is actually a behavior game.
You need to change the habits that got you into debt in the first place. As you make progress paying off your smallest debts, you will stay motivated. Trust this process, and you will become debt-free.
So, stop right now if you are thinking that it is insane not to focus on the highest interest rate debt first. The goal is to get traction and stay on course. Also, the goal is to get out of the hole as fast as possible, which makes interest rates irrelevant to this conversation.
5 Steps To Plan Your Debt Snowball
Follow these five steps to plan and execute your debt snowball:
- Organize all your debts (except for your mortgage) from the smallest balance to the largest balance.
- Continue making minimum payments on all your debts.
- Focus on paying extra on the smallest debt until you eliminate it.
- Move on to the second smallest debt on the list. Use the money you were paying on the first debt plus any extra money you can get to tackle the second one ASAP.
- Continue this process until you are done paying off all your debts.
Do you need a little inspiration and proof that this method works? Check out this article about a college graduate who paid $36,000 in debt using the debt snowball approach.
The Real Secret To Get Out Of Debt ASAP
But Yez, you must be wondering, how am I going to pay down my debt if it feels like there is not enough money coming in? Let’s get to that.
If the only way to really pay off your debt is by having the cash to send your creditors a check, then we need to focus on making more money. Start by tightening up your budget to make more of the income you already have. You must also eliminate or reduce expenses. How about asking for overtime at work?
If you are not budgeting every single month, you are really going to struggle making progress. Make sure to download my free Smart Budgeting Guide.
Making Some Extra Money
The more extra money you can produce, the fastest you will get out of debt. If you can’t get more hours at work, then find a second and third part-time job. I have a friend that drives for Uber fifteen hours a week and makes on average an extra $1,500 per month. She has a decent income as a TV producer but lives alone and likes to travel. The extra money allows her to maintain her lifestyle comfortably.
To have extra cash, you can also sell stuff you don’t use. And if you are getting a big tax refund every year, you need to review your tax withholding allowances. Getting a tax refund means that you paid the IRS too much during the previous year. You are better off with that money in your wallet every month.
Dave Ramsey’s Baby Step Two
Keep in mind that when you are paying off your debt, you are on Dave Ramsey’s Baby Step two. You should stop all retirement contributions temporarily to add that money to the snowball. And please don’t hold your breath right now like I just said a blasphemy or something. I did say temporarily. If you are not familiar with Dave Ramsey’s Baby Steps, check out this article where I explain them in detail.
While on this stage of the game, you have to focus on eliminating debt. You are to do everything legal and humanly possible to make extra money. You should also have no social life! If you don’t try to produce additional income, you will be stuck in debt forever.
Make A Debt Snowball Timeline
Depending on how much you owe, you may spend a few months or even a few years stuck in the hole. If you have a lot of debt, come up with a timeline to finish paying it off in less than two years. If you cannot get out of debt within two years, consider selling the stuff that is keeping you in debt.
For instance, you can sell your financed car and downgrade to a paid-for beater temporarily. Use the savings to advance your debt snowball. Also, if you have money in savings but are dragging debt, you should keep a small amount in savings ($1,000 emergency fund or Baby Step one) and use the difference to pay down debt.
I know, if you are a saver like I am, the idea of only having $1,000 to your name is already making you lose sleep. I am with you. However, the point of draining your savings is twofold. First, to accelerate your debt snowball, and second to make you feel uncomfortable. Fear can be a great motivator. It will force you to stay focused, to want to pay off your debt ASAP and replenish your savings.
Conclusion: The Debt Snowball Method
If you are drowning in debt by far, the best way to start improving your finances is by getting organized. Utilize the debt snowball to create a plan and start making payments on the smallest debt. Remember, avoid gimmicks and promises of salvation through bankruptcy.
The only way to really get out of debt is by living on a budget, reducing your expenses, and generating extra money by working more or selling stuff. The more money you can throw at your credit cards, car loans, personal loans, etc., in the shortest amount of time, the better.
And don’t get hung up on the numbers game. The interest rate on your debt is irrelevant in this conversation because you are trying to get debt-free ASAP. We are not trying to stay in debt, paying less interest. Changing the money spending habits that got you into debt, budgeting, and living under your means is how you win the money game.
Rated Articles To Getting Out Of Debt
- $5,000 Paid Off in Credit Card Debt by Going Cash-Only
- How to Save Money and Stop Living Paycheck-to-Paycheck
- Dave Ramsey’s Baby Steps
- Living Debt Free, is it Possible or Wishful Thinking?
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