How to Pay Off Your Debt (The Debt Snowball)

Gather your account statements for all your outstanding DEBT and be sure that you include your significant other’s DEBT (if applicable). It will be hard to proceed any further without knowing where you actually stand. Get a copy of your Free Annual Credit Report and verify that the credit bureaus don’t show you responsible for any other accounts you may have forgotten about.

You may have a couple of small debts under a $1000 from medical bills, department stores, or other places. Focus all of your extra income on these small accounts first. Pay the minimums on the rest of your loans and get these guys out of the way so you can focus on the big ones. Once you’ve knocked off your last “small” account take that payment and start attacking the big debts. Mathematically, it is best to pay down your remaining debts by order of the highest interest rates. This decision is yours. I preferred to attack my debts smallest to largest regardless of the rate based on the advice of Ramsey. He states that the emotional boost you get from knocking out a few quick loans will help keep you motivated throughout the entire process. When you knock out a debt apply that payment to the next debt up your list and keep repeating this process until you are done. Financial planners refer to this technique as the Debt Snowball because as you pay off a debt, that payment then rolls into the payment on the next debt in your plan continuing to grow like a snow ball would! Remember focus is the key here.