Brett BittnerDebt Snowball - Eliminate Your Debt Load
We have discussed decreasing our cash outflow briefly, and I want to break down how to make the biggest impact in decreasing your debt load.
The first thing we need is all debts you have due, which should be pretty easily accessible after having completed a budget only a couple weeks ago. In addition to the bills we have included in our budget, we need a credit report. If you aren’t doing so already, you need to be pulling your credit report annually at the very least. You can get one for free at Annual Credit Report, not to be confused with the LIARS at freecreditreport.com (please note that I did not link to them, nor will I). If you have never looked at yours, I suggest pulling all three at the same time from Equifax, TransUnion, and Experian. Use these to examine whether you need to add accounts to pay off as we right the ship. It will also give you some direction to clear up any accounts associated to you that you are not responsible for. Once all of the bills are rounded up, proceed to the numbered steps below to maximize your money paying down your debt.
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STOP all use of these accounts. No cards, no dipping into a HELOC (Home Equity Line of Credit), etc. If you don’t stop using the accounts, this will not work.
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Find the bill with the lowest balance, and place it at the “front of the line” and place your mortgage at the end of the line.
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Then, place your bills in order from highest interest to lowest in between these two bills.
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Pay the minimum on all but the “Line Leader” bill. This will keep you current on the “Line” bills, while you work on the eliminating the rest of the stack.
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Pay everything you can on the “Line Leader” bill. This will mean paying the minimum PLUS half of the positive number in “Disposable Income” from the budget. The “Extra” money will be applied directly to the balance of this bill, making its presence in your life far shorter than the creditor would like it to be. Make sure that you are sending separate payments for the “minimum,” and the “extra” for the “Line Leader” bill and note that the “extra” is to be applied toward the principal only.
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Once the first “Line Leader” bill is paid off, repeat steps 4 & 5 for the next bills in “Line”, adding the money you WERE paying on the “Line Leader” to the next debt in “Line.” Continue this cycle until you have paid off all of the debts.
You may ask why we take that lowest balance bill and place it at the front of the line. The reason for leap-frogging other potentially high interest debts is to give the “Snowballer” a sense of accomplishment with the complete elimination of one debt right off the bat. Paying off your debt really is this simple. You determine how much you pay toward it with your budget, rather than the debt holder telling you. By reclaiming the power over your debt, you control how long it is present in your life. This is the method I can strongly recommend to eliminate all of your outstanding debt, moving toward a debt-free life.
Filed under: Credit Cards, Debt, Organization, personal finance | Tagged: Annual Credit Report, Credit Cards, Debt Snowball, HELOC, Out of debt
[...] Debt Snowball - Eliminate Your Debt Load [...]
[...] WOW! What a Great Way to Eliminate Additional Debt Posted on April 23, 2008 by Brett Bittner In one of the few breaks of my workday /sarcasm, I came across an article that I think I can add to. If you don’t carry enough plastic to charge up every item you come across, you will keep yourself from spending money that isn’t yours, or that you don’t have yet. I like the simplicity factor in organizing my life, and I find that having fewer options to pay for something really keeps me from saddling myself with additional debt. Take a gander at this story on Lifehacker, and the story that inspired it on Real Simple and consider how much you could save if you didn’t carry all 32 cards of plastic evil, and how much of a positive factor that will be in reducing debt via the Debt Snowball. [...]