Who likes to carry debt? Sure, we all use credit cards and have some loans out there but, wouldn't it be nice to not have to worry about those things? About 15 years ago, I heard of a system called the “Snowball Effect” from Larry Burkett and, about 5 years later, Dave Ramsey wrote about it.

Here is what they say to do: Take all your debt; credit cards, auto loans, personal loans, house loans, student loans, etc. Put them in a Spreadsheet like the one below:

Creditor Amount Owed Interest Rate Monthly Payment

Chase 300.00 29% 25.00

Capital One 500.00 22% 50.00

American Express 2,500.00 12% 250.00

Loan from Parents 5,000.00 500.00

Student Loans 98,000.00 2% 1,000.00

House Payment 150,000.00 3% 1,500.00

Total 256,300.00 3,325.00

Now that you have your list, put your smallest payment on top and largest payment on the bottom. Your goal is to pay the smallest debt first and apply that payment to the next smallest. In this case, we have the Chase card. Here, pay as much as you can until it is paid off. If you can make $50.00 payments instead of the minimum amount, or any amount more than the minimum, do it until it is paid in full, while paying all your other debt. Then, take that payment and add it to the Capital One payment. Here, you will make a $100.00 payment every month until it is paid off. Repeat this process until all of your outstanding debts are paid off.

If you are paid bi-weekly, like many Americans, two times per year you will receive three paychecks in a single month. If you get paid like this, take one of those extra paychecks and pay extra on the smallest debt. If you get a bonus, same thing! Put an extra payment on the smallest debt to try and pay it off quicker.

What’s the catch? STOP using the credit cards! Use them for emergencies only!

Once you have become debt free, start adding more money to your retirement account. If you get a raise at work, don’t increase your spending, put that money toward your debt or retirement.

There is no greater joy than living debt free. If you want to plan to achieve this goal, please talk to your Accountant. If you Accountant doesn’t do this or you don’t have one, set up a Free Consultation https://go.thryv.com/site/pinabiz and I would be happy to help you live a debt free life.