Many people are now thinking about the new year and are creating some goals.Too many people however quit before they reach their goal. Last week I showed how you can accomplish your goals with an example for savings. This week I want to help you tackle one of the most popular goals people make – paying down or off debt.

What if you’re just able to make your minimum payments each month? What if you’re overwhelmed by having debt in the five figures (or more)? Is there a way you can set up a system for you to pay off your debt faster without resorting to rice and beans for the next decade or so?

How Debt Snowballs Work

Watch your credit cards, you may be losing money.

You may have heard of debt snowballs, but never understoof how they can work for you. Let’s say you have 4 debts right now that are weighing you down:

  • Visa: $500 – Minimum Payment is $20/month
  • Mastercard: $1,200 – Minimum Payment is $50/month
  • Car Loan: $250/ month  ($10,000 balance)
  • Student Loan:  $150/month ($20,000 balance)

That’s a total of $470/month you need to have to just pay the bills. You looked at your budget and you managed to cut eating out a bit and save enough for $550/month. Using the debt snowball method you’d pay everything as you normally would except for the Visa. The Visa payments would go from $20/month to $100/month (your regular $20 plus the $80 you dug up by trimming your budget).

Once that Visa bill is paid off in about 5 months, you now take that $100/month and add it to your regular Mastercard payments to bring up to $150/month. After you knocked out, you take that $150/month you used to spend for your credit card bills and you contribute that towards your car or secured loans. Now your $250/month car loan is being whittled down significantly since you’re now paying $400. You keep going until you pay off all your debts.

The great thing you notice is that you don’t have to greatly increase your debt reduction payments, you start with where you’re at and build from there. As you progress in your career, no doubt you’ll see small increases to your take home pay. You can use a portion of this extra money to speed up your debt elimination plan even further.

If you have a hard time building up your debt snow ball, settle for using snowflakes. Snowflakes are smaller sums of money that you throw at the debt as they come in. Think of the extra tip you got from your barista duties or maybe you got a bigger tax refund. As soon as that money is in your account, transfer a chunk of that out for paying down your debts. Don’t let it linger or you’ll lose that opportunity as it is easy to spend those little windfalls.

Making the Debt Snowball Easier – Automate It

Do you want to make the system even easier for yourself? Go ahead schedule your bill payments to handle your debt snowball plan. Once it’s in place, just check on your account monthly to make sure the payments went through and your balances are decreasing. It should take about 20-30 minutes of your time each month. It’s less stress and you’re setting yourself for success because you’re removing barriers that keep many people from paying off their debts.

 Staying Motivated While Paying Off Debt

After you knocked out the smaller debts that you have, it’s time to tackle the bigger ones. Even though you have a system in place that has been proven to work, you now have a new challenge – staying motivated and on course with your debt elimination plan.

It begins with breaking down your balance into smaller goals. Let’s take an example of a $40,000 student loan. How can you stay on track until you’ve paid it off? Here are a few suggestions:

  • Keep a chart. Many of us tend to be visual people, so having a visible chart in our place can be empowering. Every time you make a payment go ahead and update your chart.
  • Set up small rewards. When you get the debt down to certain levels, like $30,000, $15,000, then $10,000, and so forth you should celebrate.  Throw a party; take a long weekend, do something that you enjoy (that’s frugal) – you deserve it.
  • Bump up your budget. It may seem counter-intuitive, but as you decrease your debt, you should adjust your budget to include more wiggle room to fun. For some people having

With time, you can get out of debt without stressing out or becoming overwhelmed.

Psychology of Money

What debts do you currently have? How much debt have you’ve paid off? How do you plan on getting out of it? Curious to see what affects your money making (or losing) decisions? Check other posts in the Money & Psychology series:

Photo Credit: quaziefoto


Laura Martinez

Laura Martinez