Baby Step 2

Pay off all debt using the Debt Snowball

What is the Debt Snowball theory?  The basics of this theory is to pay off debt smallest to largest.  Meaning, pay the smallest debt off first, then the second smallest, etc.  When you get the smaller debts paid off first, you begin to see accomplishments in your payments.

Let’s say you have to make payments on your car, mortgage, student loan, and 4-wheeler.  That makes four major debts that you have to pay off.  You owe $400 on the 4-wheeler, $900 on the car, $2,000 on your student loans, and $12,000 on you mortgage (remember, these are JUST examples!).  The minimum payments you need to pay per month on each debt is $10 and you have $100 to put towards those payments.

When applying the Debt Snowball theory you will pay that minimum amount of $10 on each debt, leaving $60 in you budget.  You would put the full $60 towards the smallest debt, which is the 4-wheeler.  After you get that paid off, you can use the money going towards that debt to start chipping away at the next smallest-the car.

Again-basic theory is to pay off the smallest debt first, then move on to the next.