I’m going to share a little bit more about myself as I go. Personally I am in the middle of what I call a debt snowman. We all know how a snow man is built, biggest ball of debt on the bottom, in my situation it’s my mortgage, next ball is a car payment, then is a hospital bill from our newest child. I was not able to save enough money to pay cash at the time of delivery. I know I had 9 months to save we just pressed forward on a couple other loans and other items that are now paid off and I don’t have to worry about those things now. Really I traded one for another, it’s just now I can pay the hospital interest free instead of paying 4% or whatever it was for student loans.
So in your snow man you have built. Your largest debt is your base, then the next largest, then the next largest. EVERYTHING from a car balance, student loans, debt consolidation loans, personal loans from mom and dad, credit cards. Now you need to get creative on destroying debt. Some people may imagine hitting their debt with a baseball bat. I’m a guy so I like to think blow things up, so instead of a bat I think of a package of fireworks (tis the season). Every firework acts like a dollar, so you are going to put one firecracker in each ball making the minimum payments to your mortgage, and car loan and student loan. With EVERY extra firecracker you are going to put it into that top ball or the smallest debt. You will still be making progress on the mortgage and little by little on the car. But that $5000 that has been sitting on your credit card for the last 3 months just blow it up! You spend every last dollar you have on breaking down the smallest debt you have and you will really see a difference in your mind and you will feel better little by little knowing you are doing this.
Make a list of all of your debts and now circle them today is the first day of your snowman. If you do not have $1070 in your savings account that is the head of your snowman. Get that built up as your first debt, you always pay yourself first.
Here is what we are going to do next if you have more than $1070 in your savings account you need to read my last post and get over to the bank and get yourself a CD. You are going to take the rest of the money in your savings account and get as many fireworks as you can buy. You DO NOT have to wait till next month to pay off that credit card! “Well I just made that payment” SO WHAT?! If you have a credit card with $5000.00 on it with an interest rate of 18% and you are making the minimum payment of 4% which is $200 on it you will be paying that card off for the next 11 years. Get excited about changing what you have been doing and make a plan to what you are going to do. You will feel almost a high when you payoff that first debt. Every time you pay something off go back to your snowman and make a big red X over that head then look at the new head and say “you’re next” it sounds a bit crazy but you will want to do something. If your debt is over $10,000 every time you tick off $5,000 reward yourself. Go out to dinner, have people over, you don’t have to throw a party. Just do something it’s a big deal $5,000 is a lot of money you deserve a break to say I/we did this!
I’m a visual person so here is what I’m talking about:
- Loan from Mom – $1,000 payments to her are $100
- Credit card $5,000 payments are $200
- Student loan is $20,000 minimum is $135
- Car loan $25,000 minimum is $400
- Mortgage $100,000 you are paying $1,200 with $75 extra per month.
Stop right there! You are not paying extra to anything anymore except the smallest debt you have. Making and extra $75 to the mortgage is like spitting on a wild fire sure you can save a stick but the forest is burning all around you. Instead of taking 10 months to pay mom back with that extra $75 you are going to knock off 4 months. Next is that pesky credit card, instead of paying $200 for the next 11 years you pay $375 for the next 16 months a year and a half. Now you have a lot of fireworks being put into a $20,000 student loan. The more firecrackers you put into a debt the faster the debt goes away.
You need to attack the debt like it was talking bad about your sister or like it hit your brother in the teeth. Get mad about it. I believe you can change anything you put your mind to. We have all heard the story about the lady who lifted the car off of her husband. She made up her mind that she was going to do it.
“When everything seem to be going against you, remember that the airplane takes off against the wind, not with it ….”
― Henry Ford
This is a long process, if you are debt free by Monday because you had enough money in your savings to payoff everything congratulations you are the 1% I’m not talking to.
Also some people will say once you pay off that credit card you have to cut it up and close it out. Please please please do NOT do that. One of the worst pieces of advise you can ever follow. If you have a safety deposit box at your bank put it in there for right now see if you can get a free safety deposit box with your account at your bank. Your credit score is partly based on revolving credit and how long you have had payment history if you close that card you will lose the good payment history you have with it. Just pay it off for now. We will get into credit down the road a bit. Get a best friend on this if you are married do this together. If you are single get grandma’s advice or a friend that you can trust maybe someone you know that could use a little support you could be there for them. Do this journey as a team.