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many people have different theories and ideas on how to pay off debt.
i’m sharing what worked for us and what we still use to tackle our debt. i wouldn’t share something which didn’t work for us or which i didn’t believe in.
we personally used the debt snowball effect. i learned about this method in one of Dave Ramsey’s amazing books, The Total Money Makeover (you can purchase from Amazon with the affiliate link below). if you haven’t read any of his work, I HIGHLY recommend it.
we didn’t pay off debt by trading in our cars for something less expensive we could pay for with cash, we didn’t pick up extra jobs, or even change jobs. we didn’t eat ramen every meal, we didn’t do crazy drastic measures. which is likely how most people will pay off debt too. we did it with what we had and it worked great for us.
are we totally debt-free today? HECK NO! we’re not even close, but we’re a lot closer than we were a year ago when we first started our plan.
Where to start?
- creating a budget || we sat down and created a budget,. we did this step not so much for the actual budget, but so we could see what extra we could put toward our debts each month
- listing debts || we made a list of all of our debts from highest to lowest (total amount of debt, not monthly payments)
- I focused on the smallest debt first. why? because it was one less monthly bill to pay and it was great motivation to keep going.
our smallest debt was a student loan with around $2,000 on it, we paid it off in just over 2 months.
we took small amounts of money here + there to pay additional to the monthly payment. instead of going out to eat, I transferred the money we would have spent to the loan.
hitting the submit button when I made the “payoff payment” was so exciting, I felt so giddy. but for me, it was so much more than the achievement of paying off a loan. it was knowing our discipline and choices we made now were positively impacting our future children who were YEARS down the road yet. we knew it was one less monthly payment to worry about and boy did it feel good not to worry.
so you paid off your first debt, now what?
in my opinion, this part is where the true test of our discipline happened.
we now had a couple hundred extra bucks the next month, and it was so tempting to splurge, because we had the extra money to do so. BUT we went back to the feeling of holding the payoff letter in our hands and knowing we wanted to keep holding those.
- cross of the first debt || something about crossing an accomplishment off a list just feels amazing! it’s an AMAZING visual reminder of how far you have come and what you accomplished because of your hard work.
- BUT don’t celebrate for too long, because those extra bucks now go to the next debt + what you already pay on the debt each month.
- then: 1st debt payment was $150 each month.
2nd debt payment was $100 each month.
Total of $250
- now: 1st debt = paid off.
2nd debt payment = $250 + extras
after we got into the rhythm of this new system, it became second nature for us.
through this system, we’ve paid off close to $10,000 in debt just over a year!