Quickest Way to Debt Free!

Document created by shelleys on May 31, 2016Last modified by amara.mastronardi@socialedgeconsulting.com on Dec 5, 2016
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I often encounter people who are downing in debt. They try to do the right thing and pay them off by putting a little extra money on each credit card. This gets them nowhere fast. They often get discouraged and give up. Thats because they are doing it all wrong!  The best way to pay off debt is by using the snowball method.


List all your debts in order from lowest balance to highest. The interest rate doesnt matter.  For easy math lets assume they are all zero % interest.

Card 1 balance: 500  Min payment: 50

Card 2 balance:1500 Min payment:100

Card 3 balance:5000 Min payment:300

In this example you are required to pay 450/month.  Lets say you have 500 you can use toward your debt each month (thats an extra 50 to go somewhere).

Put the extra 50 on card 1, so pay 100 each month. This means in 5 months the card is paid in full! WAHOO!


So five months down the road, you now have the following balances:


Card 2 balance:1000 Min payment:100  (1500-500 in payments = 1000)

Card 3 balance:3500 Min payment:300 (5000-1500 in payments = 3500)

You are now required to pay 400/month, but you still have 500 a month you can use toward your debt.   Put the extra 100 on Card 2. So pay 200 to card 2 and 300 to card 3.

Guess what.. in another 5 months you have paid off your second credit card! Bam! Its that easy! Will you quit now? Heck no! You are on a roll!


So ten months after you starting seriously paying down your debt, you now have the following balances:



Card 3 balance:2000 Min payment:300 (3500-1500 in payments = 2000)

You are now required to pay 300/month. But you will pay more than that, right? Surely you have 500/month that you can apply to the last remaining credit card.   That means in just 4 more months you are credit card debt free! 


You managed to pay off $7000 in just 14 months!  Thats AWESOME!! Time to celebrate and cut those cards up, right? WRONG! Contrary to popular belief, you do NOT want to do that!  Your credit score will actually go down! You probably could cancel one of them, but not all three. Cancel the one with an annual fee (why pay money to have available credit when there are so many options out there) or cancel the one that you had the shortest amount of time (this wont hurt your credit score as much because you have less credit history with this card) or the one with the lowest credit limit (the ones with higher balances actually help your credit score when you are using them correctly).


So you are now credit card debt free, less stressed about finances, your credit score went up, you have the knowledge of how to get out of debt should something like this ever happen again and you have 500/month that can now go toward your other debts (car or student loan), savings for an emergency, or into your retirement account (or a little bit into each).  You also have bragging rights. So go tell your friends and family how you did it. Encourage them to do the same! It works no matter how high or low the balances are.