How’d your week go? Did you prioritize your debts? How did you decide which one to pay off first or last? Did you think about why you’re doing it that way?
When my husband and I were in the throes of paying off our consumer debt, we would battle back and forth about which debt to pay last—the home loan or the car. Each one had its own pros and cons and eventually, we decided to go with paying off the car last. We did this for two reasons: 1) we’re planning on selling our house and having the home loan would not be beneficial and 2) we were going to take the car with us when we moved; we wanted to pay off everything that was staying.
As far as deciding what to pay first, we opted for the smallest balance. We needed those psychological victories to keep us going (plus, that’s what Dave Ramsey said to do).  What also helped was having a spreadsheet that I updated each month with the new balance totals, plus a calculation of the total amount of debt paid off. When we would have a slow month, it would help to look at the overall picture for a little boost.  This worked, too, because about $60K later, we’re consumer debt free!
Finding money
This week we’re going to talk about ways that we paid off our debt. I’m not talking about cutting back on luxuries or getting part-time jobs or having a budget (which we did); I’m talking about methods we used to apply that extra money to our debt. The methods are pretty simple. Seriously, if we were able to use them then anyone can. It’s that easy.
Here’s what we did:

  • Snowballed payments. Made famous by Dave Ramsey, this is where you pay off one debt and roll the amount you were paying on that debt into the next debt, creating a larger payment for that next debt. This goes on and on. This was extremely effective for us in the beginning, before we had part-time jobs. It was an easy way to come up with more money to pay on a larger debt.
  • Rounded up. This was also an effective method for coming up with more money in the beginning. Basically, if we had a bill that was $257.58, we would pay $260. It wasn’t much toward the overall balance but at least it was something. And, it made us feel like we were tackling all of our debt at once. Even as the balance would go down, we would stick to the same rounded up payment (especially for our car. We kept the payment at $330 every month even if the minimum payment due was $288.42 or whatever).
  • Made lump sum payments. Sometimes it was fun to make a minimum payment while stockpiling cash to make one giant payment. We found there was something satisfying about making a $12000 payment on a debt all at once. It was also fun to watch our savings grow because, although we knew it was going towards debt repayment, it taught us that we could save large amounts of money.
  • Snowflaked our debt. Every time we came into a little extra money, whether through odd jobs or unexpected money in our paychecks, we added that money to our debt. Sometimes it was just a few dollars but it felt good to make an extra payment, knowing that even that little bit of money was making a difference.

Task for this week
For this week, I want you to determine what method you want to use to apply money towards your debt. It doesn’t have to be something listed here. It can be something you come up with on your own.  It can be a combination of methods.
It’s important that you know how you’re going to pay down your debt. Having that plan ahead of time makes it easier to implement.

Jana Lynch
Jana Lynch