If you’re reading this, I’m going to assume that it’s because you have some sort of debt. Good assumption? I’m not re-inventing the wheel in this article, but I am going to clearly and easily explain two proven methods of paying off debt. Since both of these methods focus on different payment priorities, I’ll provide some advice on which method would be best for who you are.
First, let’s discuss the similarities: both methods require you to actually pay off your debt. Sorry. Secondly, while each method has a specific target, both will require you to maintain the minimum allowed payments on the rest while you focus on said target.
That’s about it for similarities.
Next, before we dig into the methods themselves, let’s start with two rules.
METHOD ONE
Do you like the idea of being guaranteed the most minimal expenses over the life cycle of your debt payments? Then this method may be for you. It’s time to get into some interesting ideas about interest.
To lay it all out there, this method prioritizes paying off your dues with the highest interest first and slowly working your way down to the lowest interest until everything is paid off. Now, this isn’t an open invitation to ignore all of those low-interest debts. If you get tempted to, go back and read rule #1. And then read it again.
To get prepared for this, it’s time to get organized like you did with rule #2. Make a short, sweet list of your debts in order of interest rate, highest to lowest. Instead of jumping around from credit card to credit card or debt to debt, start making large lump-sum payments toward the first item on your list every month. While you’re doing this, make sure to keep making the minimum allowed payments on those lower interest items. This requires patience; it might get a little discouraging to see that item taunting you for a while from atop that list, but as long as you keep those low-interest items active, you can take solace in the fact that there is absolutely no stagnation. And once the highest-interest debt is paid off, it’ll be knocked off the top for good! As soon as you’re sure that you’ll be accruing no more interest with the most intimidating rate, you might be breathing a little easier as you prepare to annihilate item #2.
IDEAL FOR:
Avoiding being swept away by owing even more as a result of high interest debts
NOT IDEAL FOR:
People with little variation in their interest rates
People who tend to lose motivation as a result of not reaching a quick goal
METHOD TWO
Winter is coming. And so is your freedom.
It’s time to read about the method of the Debt Snowball.
I want to start off by saying that this method is, in the long run, no faster or slower than the above method. However, it does enable you to begin knocking out debts right out of the gates before evening out the pace, which may help you stay motivated and determined to keep the payments going. The Snowball method is the act of paying off all of your small debts first so that you have fewer to worry about by the time the big ones come around.
Similar to what I said about method one, this is not an open invitation to ignore your bigger debts. This will require you to keep making minimum allowed payments on them while you’re chopping down those smaller ones.
The first thing you want to do? That’s right, folks. Make another list! This time, simply list your debts from smallest to biggest. At that point, you, like a snowball, are ready to roll.
Although your focus will be on clearing out those small debts, don’t completely neglect the bigger items. Make the minimum payments on those bottom-of-the-list-ers while making the largest possible payments on that top item. You’ll keep employing this method, plowing through your debts like an excited kid on a sled, until you’re left with only a few items on that list. These will, of course, require more money than the ones you have knocked off, but at this point, you’ll feel the weight on your shoulders lighten considerably with the privilege of not having to worry about a million different dues.
And those giant debts that you had trouble even thinking about when you started? Well, thanks to your minimum payments, they’ll be looking a lot more manageable.
IDEAL FOR:
Quickly visible progress
Diving right into payments
NOT IDEAL FOR:
Those looking to avoid accruing high rates of interest
Both methods are tried and true for debt management, but whichever one will be most effective for you depends on your own personal goals and your individual priorities. With some dedication and focus, you’ll find yourself on a clearer path to a debt-free life no matter which one you choose.
Rule #1:
Do not run away from your debt. We’ve all ignored a call we didn’t want to take. We’ve all avoided opening an email or two that we didn’t want to read. We’ve certainly all waited until last minute to check a bank account because we knew just what kind of figure was lurking in its depths. Don’t do that here, alright? Debt is an Olympic track star. No matter how fast you think you can run from debt, I can guarantee you that it runs much, much faster.
You need to know what your debt is. You need to confront it and you need to build a strategy.
Rule #2:
You need to know what you owe. This may be the toughest part of that aforementioned confrontation, but it’s your first step to financial freedom! Before you get to paying, get to organizing by neatly logging what you owe. Whether it’s a credit card, a bank loan, or a student loan, here are the basic pieces of info that you should be recording:
Debt Name
Debt Total Amount
Interest Rate
Due Date
Now that you’ve got these rules, remember that no one can enforce but yourself. So without further ado, let’s look at the first method!