Make a budget. Part 4. Debt payment strategies.

We’ve talked about setting up that budget, adjusting when surprises come in and getting your priorities in order.  If you’re like we were, (and I’ll bet you are), the reason you started on this journey is that you could see that the debt was piling up.

Let’s get that debt paid off.

Debt re-payment strategies explained.
Debt re-payment strategies explained. Strangely, all related to snow.

I’m going to explain the three major debt repayment strategies.  Then you can determine which would be best for you, or perhaps, a combination of a couple.

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For all three examples, we are going to use our debts as listed in our example budget.

The debts category looks like this.

Debt re-payment strategies
Debt payment strategy: The debt snowball.

1.  Debt snowball.

The debt snowball has been made famous by Dave Ramsey, and sure gets the motivation going.  It really helps to see a few small wins in the game, so you feel much more committed.

The debt snowball works like this.  Instead of looking at your debt like the example above, you organize it to keep you on track.

Line them up smallest to largest, according to the total balance due.

Debt re-payment strategy: the debt snowball.
Debt payment strategy: the debt snowball.


Then, you start paying them off as quickly as you can.  You feel like you’re in one of the old-time carnival games as you shoot the ducks as they come up.  See one? Get it!

Is that another one?  Knock it out!

In the first paycheck, you could likely pay off the library bill, the 2nd medical bill, and the original medical bill.

Debt payment strategies.
Debt payment strategy. The debt snowball.

That total would be $5.25 + $91.85 + $251.00 = $348.10.

$348.10, remember that number.  That is a solid start on your debt snowball.

Then next month you set your budget and have that $348.10 to add to the next smallest bill, which is the Mastercard.  You are usually paying $23 per month.  But now you have $348.10  to add to the payment.

$23.00 + $348.10 = $371.10. Big payment to your Mastercard balance.  You are just about done with that payment!

Your budget with the debts would look like this:

Debt payment strategy: The Debt Snowball.
Debt payment strategy: The Debt Snowball.

You are just about done with this bill.  Now things get

Now things get cookin’! You start to see the power of your money working for you!

The next month your budget for debts would look like this:

Debt payment strategy: Debt Snowball.
Debt payment strategy: Debt Snowball.


Uh… Later, Mastercard!

It’s incredibly motivating to see your list of bills get smaller and smaller, and to see that on your Mastercard payment, which is usually the minimum of $23. you are putting in $371.10.

Yes, you do add that last ten cents, too.  Know why?  It goes to the principal.  And even ten cents back on the principal will knock that bill out.  You’ll have that $498 paid off by the following month.

Holy cow!  Now look at your debts due in just a couple of months after starting this.

Debt payment strategy: the debt snowball.
Debt payment strategy: the debt snowball.

We started this with 8 payments due during the month.  Now there are only three!  Three payments!  Think of how much easier it is to have just a few payments to keep track of.

That’s the power of the debt snowball. I have to tell you something: we didn’t do just the debt snowball.  Tomorrow we’ll go into detail about the avalanche method and the snowflake.  Why are they all related to snow???  Pretty funny.

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