Having debt is overwhelming, and working out the best debt payment plan can be stressful. However, getting out of debt is the key to financial freedom; it’s never too late to start.
Make a promise to yourself to start today and create some new financial goals so that you can get yourself out of debt quickly.
The Snowball Method focuses on your smallest debt first while paying the minimum balance on your other debts. Thus, you are knocking out the smaller debts first while gaining momentum.
Paying off debt isn’t an easy journey; it will take a lot of time and patience. However, the result of being debt-free is both empowering and life-changing. It doesn’t matter how much you earn; anyone can do it if you are smart about it and have a good plan.
Table of Contents
What is the snowball method?
Making minimum payments on all debt, then using extra money to pay off the smallest debt. The goal is to reduce the number of debts you have one by one, giving you small wins along the way.
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How does the snowball method work?
Calculating all debt and minimum monthly payments
- Credit cards
- Student loans
- Car payment
- Personal loans
- any outstanding bills
Ordering your debt by smallest to highest
- Focus on paying the smallest
- You will still pay your minimum payments on your other debts
- Any extra cash will need to be paid into your smallest debt
Once you have paid off the smallest debt, you will pay off the next building up momentum.
Should you pay off the smallest debt or the highest interest first?
The decision to pay off your smallest debts first or focus on your high-interest debt first will be entirely up to you. First, review your own situation and what motivates you. Will saving you money on interest or seeing progress faster? Both systems have positives and negatives, which I have listed below:
Benefits of the debt snowball method
- it will reduce the total number of debts faster
- easier to implement
- Can see progress earlier
- small wins will give you motivation
Negatives of the debt snowball method
- your highest interest debt will be accumulating costs
- you will still have the high-interest debt
- It may take longer to may all your debt in the long run
How to get out of debt
To get out of debt, you will need to create goals and a budget.
Having financial goals will help give you purpose and momentum to pay off your debt.
How to Get Out of Debt
Why is a budget important?
Creating a budget will help track your expenses so you can see where your money goes. Sticking to it takes a while to get used to, but if you are focused on being debt-free, the short term sacrifice means more money in your pocket in the long run.
Budget Positives:
There are many positives to having a budget and sticking to one.
- Getting out of debt
- More purpose and control over your money
- Able to save for things that you want
- learn your spending and emotional habits towards money
- It helps you be more organised.
- less stress
- No embarrassment – never being caught out at the grocery store or having a payment not go through
- Confidence that you will be able to manage when an emergency happens
- Reduces impulse buying and making smarter purchase decisions
- Breaks bad habits
- Better quality of life
Budget Negatives:
- It takes time; paying off debt or having savings goals will take months or even years to complete. The small amounts that you paid off or save may seem very small on a weekly or monthly basis, so it’s hard to see the big picture.
- Tracking Expenses;can be tedious; regularly adding your expenses into a tracking system can be pretty dull, especially at the start when you still see a lot of outgoing costs and not much left afterwards. However, your balance does improve as debt, and other bills reduce.
- You can”t have everything; saying goodbye to impulse purchase, having the latest versions of products and reducing your fun or social expenses will take time to adjust. There will often be an emotional trigger attached to your spending habits. have you had a bad week at work, are you bored or want to buy something to cheer yourself up?
How to create a budget and stick to it
How to Create a Budget
- Income– How much do you earn and how often
- Expenses– Listing your essential expenses to live, calculating your current flexible costs and predicting future costs,
- Debt reduction– Knowing how much debt you have.
- Savings goals – Creating goals to work towards for the short, medium and long term.
- Allocating your money– Giving every cent a job by assigning categories and purposes for each financial area. Holidays, new car, mortgage or house deposit etc
- Tracking your spending– Each time you spend money noting down how much and which category and account.
- Review and adjustalong the way – What adjustments are needed if you overspend in one area? Can you reduce another area to compensate?
How to Get Out of Debt
- Create a budget and stick to it
- Create a shopping list
- Have an emergency fund
- Have money for fun
- Don’t touch your credit card
- Plan for emergencies
- Pay for things in cash
- Change your spending and savings habits
- Earn Extra Cash
- Review your budget regularly
- Education
How to keep motivated?
Changing your habits and being financially responsible is tough. It’s a slow process, and you have to be patient. Keep track of how much you’ve paid off; seeing the amount decrease each month will give you momentum.
Once you achieve a goal, give yourself a small reward before starting with the next debt. A reward will provide you with something to focus on and work towards.
The debt avalanche method may not be the best choice for you; see the debt snowball method to see if that is a better option for you.
Once you have paid all your debt, then what?
You have reached financial freedom! You’ll be less stressed and worried; there will be more money for you and your family.
After you’ve paid off your debt, you will be able to start your savings journey, or you might even consider work less and spend more time doing things you love.
Whatever your dream is, you won’t have the ugly debt hanging over your head holding you back.
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