Whether you are paying off student debt or are simply making an expensive car payment every month, there are far more interesting things we wish we could be doing with our money. Are you interested in having savings instead? Perhaps some pocket change for that road trip you’ve always wanted to take, or for that expensive date you’re itching to take your significant other out on?
Being in this position can be frustrating to say the least. But it doesn’t have to be. This can be your time to turn things around and stop being in debt.
[Read: Pay Off Debt Quickly By Cutting These 4 Bills]
Here’s how you can begin to pay off $10,000 in debt.
Step 1: Write it all down.
It doesn’t matter how you go about doing this – just do it in a way that you can easily keep track of. That can mean starting a Word document or an Excel spread sheet. Or plain old paper and pen will work as well.
Regardless how you choose to write this down, write out each and every debt you owe. Write your interest rate and the minimum payment for each debt. If your credit card or mortgage rate will be changing, remember to write yourself a note about when that will be changing.
So if you have any of the following, they need to be on your list:
- Student loans
- Credit cards
- Home equity loans
- Vehicle loans
- Personal loans
- Any payment plans from: mechanics, doctors, veterinarians, etc.
- Any possible loans from family members
- 401(k) loans
After listing all your debts in one place it is time to total them up. Only when you know the total of what you owe or will owe, can you begin to decrease that debt and eventually bring it to a beautiful zero. This will work even if you have to pay off $10,000 in debt. Just keep reading.
Step 2: Create your personal plan for debt repayment
This may sound complicated but it does not have to be. You don’t even need a calculator.
The first step is to look at the list you made in the first step and number those debts in the order you would like them to be taken care of. There are different ways in which you can do this. You can list your debts by interest rate, beginning at the highest and working your way down to the lowest. If you think about it this method could save you the most money long term.
A second option would be to organize your debts by their balance. This method is good if you want to see progress rather fast in order to keep yourself motivated to keep going. For this you would organize your debts from lowest balance to highest balance.
A third option, if you are up for it, would be to organize your debts highest to lowest by balance rather than interest rate, and just start chipping away at them.
At the end of the day the best option is just to find the best method that will work for you so you can pay off $10,000 in debt, or even more.
Step 3: Snowball your payments
This is where your plan comes into action. Snowballing is also called avalanching or pyramiding, depending on who you ask.
Regardless, it is the same principle. Snowballing is about focusing all of your funds on a single debt and starting from minimum payments, work your way up to eliminating your balance altogether.
So go back to your list and look at all the minimum balances that are coming due on your debts. From there you compare the amounts of your minimum payments with the numbers in your budget. If you are paying anything greater than the minimum, reduce those payments to minimum, except for whichever debt is Number One on your list.
Let’s give an example. Let’s just say for example that you have three different credit cards and debts on each. If each has a $20 minimum payment, but you are paying $75 per month on each one, then reduce two of them back to $20 and focus on just one. The $55 you are ‘saving’ from decreasing those two payments, you add to the third card. So two cards are being paid back at $20 per month, and the third will be being paid at $185 per month (75 + 55 + 55).
When that third card is paid off, much sooner than it would have been, you can take the $185 per month you have been paying for the 3rd card and apply it to the 2nd on your list. With the $20 you were already dedicating to it, that comes to $205. So you are now paying one card off at $20 and one at $205.
Once this second card is paid off, you can apply that $205 that had been paying the second card, add it to the amount you’d been paying on your last remaining (3rd) card, and be paying $225 until you finish paying off that debt.
This applies no matter what kinds of debts you are paying. For our example we used three credit cards but it could be one card, one car payment, and a student loan, or any other sort of arrangement.
With this method, people have been able to pay off $10,000 in debt, and sometimes even more.
On getting the biggest snowball
You may be asking yourself, if you’re going to be making large debt repayments each month, why does it matter what kind of structure you use?
The greatest benefit is probably psychological. When you can clearly see your own progress, it is easier to keep working at something then when it’s harder to see. By piling all your efforts into one major payment at a time, you can quickly watch it dissipate.
Reaching the $10,000 mark
You may doubt your ability to reach your goal of $10,000 in just one year. Well, if you’re living off a $20,000 per year salary, it may be more of a challenge. But for many middle class individuals or families, this goal is more than doable. Just be sure to stick to your plan.
Here is a video which can explain more:
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