How to dump your debt without losing momentum

This is the 8th post in my financial series chronicling our debt free journey.

So on to baby step #2 and the real reason that most people are looking for help.


We think it's normal. It's part of life. Everyone has a car payment. Everyone has student loans. Everyone has a Visa bill.

Well, we were tired of being normal.

Dave Ramsey has a saying "Normal is broke. Be weird!"

I can't remember EXACTLY where we were on our credit card debt when we first began this journey but our debt looked something like this:

  • credit cards - $2,000
  • student loans - $5,500
  • Mazda 626 balance - $3,000
  • Ford Explorer balance - $10,000
  • TOTAL - $20,500 (not counting our mortgage)

We took a hard look at the biggest debt first. We owed $10,000 on our Explorer and it was worth about $10,500-11,000. We quickly made the decision to sell it before we got upside down. The plan at the time was to scrape together a few thousand dollars, even if we had to finance part of it through the bank, and get a VERY used car. We put in an ad and had the explorer sold within a few weeks.

Right about this time, my Grandmother died. She had a 1991 Buick Century with about 60,000 miles on it. Pristine condition. A true "grandma car". We asked my mom and my uncle if they would sell it to us. Since no one else was interested in it, they gave it to us. A true blessing.

New debt total = $10,500

There are lots of theories about how best to prioritize what debt you pay off - highest interest rate, etc. But Dave Ramsey's Debt Snowball has you list the debts in order from smallest to largest. So our list had three things - visa, car and student loans. In that order. For a lot of people this list is much longer - small department store cards, gas cards, etc. Whatever your debts are, list them out smallest balance to largest.

Then, make minimum payments on everything except for the smallest debt. Throw everything you can at the debt. Squeak every extra penny you can out of your budget.

When you have that first debt paid off you take the amount you had been paying toward that and add it to the minimum payment on the next debt - in essence growing your debt snowball.

So for example, the minimum payments we had were:

  • Credit Cards: $200 (I'm guessing at this one.)
  • Car Payment: $336
  • Student Loans: $115

So we paid the minimum payment on the car and student loans and through as much as we could at the credit cards. Now remember that for the few months prior to this we had been funneling all the "extra" money into the small emergency fund. So we took that money and added to it the amount we had been spending on the Explorer payment.  Without too much work we were able to throw about $700 at the card, getting it paid off in just 3 months.

Next was the car. Well in the 3 months it took to pay off the credit card we had also paid down that debt some - around $800 - so we had $2,200 balance. We took the $700 we had been paying on the credit cards, added it to the car payment of $336 and paid about $1,000 a month to pay that off - took us 2.5 months.

Now we had $1,000 a month that we could add to our student loan payments of $115. Again, we'd made 5 payments while paying off the other debt so we hovered right about $5,000. Paid off in 6 months.

That's a rough timeline for illustration purposes. I'm sure there were some missteps along the way. When we had a car repair come up, we paid for it out of the emergency fund and then refilled the emergency fund the next month (lowering our debt payment that month).

We've counseled tons of people through FPU and financial matters and I can totally vouch for the effectiveness of the debt snowball method. By giving yourself "quick" wins (knocking off the smaller debt) you will be energized and motivated to keep attacking the debt as you see the list get smaller and smaller.

If you want to see how long it will take you to pay off your debt, you can use this form to list it out.

Paying off our debt completely changed our lives and allowed me to do something I never thought I would do.

I'll tell you what next week.

Mom to 4 kids from 2 continents, debt-free and working full time for a global orphan care non-profit.


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