Somewhere between living and dying, at one time or another, most of us will have a point where we try to pay off the debt we have accumulated along the way.  For a lot of folks, this usually comes at a time when you are preparing to buy a house or want to make some space in your budget to save for the future.  Credit cards, vehicles and student loans can be a few of the may things we find ourselves owing money for in the grand scheme of things.  If you are trying to pay them off in a set amount of reasonable time, it is important to have a plan of attack.
 
One tool that I have used in the past to pay off accumulated debt is a “snowball” method debt payoff calculator.  This is a plan where you can attack your debt with intensity and track results immediately.  There are two main recommended methods for using a snowball that are highest to lowest interest, or lowest debt to highest debt. 
 
Method #1 is the highest to lowest interest.  In this method, you first must maintain paying a minimum monthly payment on all debt.  After the minimums, you must then concentrate the largest part of your excess expendable income into hammering your highest interest debt first (usually consumer or merchant credit cards).  The primary reason people would choose this method is to save interest of the period of time in which they want to have everything paid off and be debt free.  Many banks have online calculators that allow you to enter information about your debt and will generate visual spreadsheets detailing your payoff structure in a monthly breakdown.
 
Method #2 is a very popular method and is recommended by expert financial advisor and New York Time’s best-selling author Dave Ramsey.  This method ignores interest rates and attacks the smallest debts first.  Much in the way people stick with a diet if they see results sooner, this method allows you to see the results of individual debts being paid off quicker for immediate satisfaction.  A detailed description of this method can be found at https://www.mytotalmoneymakeover.com/about
 
Here are a couple of quick samples I have generated using one of many free online calculators for this type of planning.  This setup would allow this person to become debt free in 12 months, so long as no further spending takes place on the debt.  They both take on a general assumption that there are three basic creditors with the following information:
 

  • Creditor #1 – Balance of $2500, Minimum monthly payment of $50, Interest rate of 18.9%.
  • Creditor #2 – Balance of $1000, Minimum monthly payment of $25, Interest rate of 23.9%
  • Creditor #3 – Balance of $750, Minimum monthly payment of $25, Interest rate of 14.9%
  • An additional $300 on top of the minimum monthly balance payments available for debt repayment.

 

Method #1 Method #2


No matter which method you choose, know that you are not alone in your plan to end debt.  Many people face the issue of being in debt and it takes motivation and commitment to get ahead of it.  In this world of ever-increasing costs of living and not a lot of increased income to compensate for it, it is becoming harder and harder to remain debt-free.  Follow a strategized plan of attack, take advantage of all the free online information to combat debt, and you can succeed in your goals to stay afloat in the sea of debt.

 

Comments (9)

Jimmy Nevarez

Jimmy Nevarez is the Owner/President of Angus Transportation, Inc., based in Chino, California.  Jimmy pulls a 53' dry van hauling general dry freight for his own small fleet, operating on its own authority throughout all of Southern California and Southern Nevada.

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My family went through the Dave Ramsey program and loved it, currently using the debt snowball to pay off our debts as quickly as we can. Another good habit is to cut back on the things we don't need, which has freed up more money for our debts.

November 14, 2014 16:01:10 PM

Excellent advice! I was always wondering about the Dave Ramsey thing, and how that worked. Thanks for helping to clear this up!

June 19, 2014 15:08:48 PM

Thank you everyone! My only hope is to reach out with this and let people know that there eventually can be a light at the end of the tunnel!

May 22, 2014 13:40:50 PM

Thank you everyone! My only hope is to reach out with this and let people know that there eventually can be a light at the end of the tunnel!

May 22, 2014 13:39:41 PM

Very good blog Jimmy. Good credit is very important to have in order to make big purchases. The key is in control and management. Control your impulses, wants and desires and manage the credit to your benefit.

May 19, 2014 8:35:15 AM

Credit can be a great thing to have . As a general rule nothing goes on my credit card that cannot be paid in full at the end of the month . This also keeps my wants and needs separated . Great blog Jimmy

May 18, 2014 21:54:58 PM

THIS DEBT PROBLEM IS A VERY LARGE MONSTER,THAT'S ALL WAYS WACTHING AND WAITING FOR AN OPEN IN THE SMALLEST AMOUNT.I THINK ANYKIND OF SOLUTION TO TRYING TO LOWER DEBT OR BECOME DEBT FREE IS ALWAYS WELCOME...JUST SAYING..

May 18, 2014 19:39:51 PM

One thing I abhor is monthly bills that have interest attached. Many years ago before I had heard of Dave Ramsey we paid off everything using the lowest to highest bill and have never made the mistake again of using credit cards that could not be paid off. In our line of business we do use credit cards for certain purchases and I have a great trick to make sure they get paid off each month. I use Quicken as my register for our accounts and when ever we make a purchase on a credit card I enter that transaction in my credit card column, I then also add a payment to my credit card into my bank account as if paid BUT to remind myself in the notes I have a big NOT PAID. Each time we make a credit card purchase I enter the amount into the credit card and then up my payment to the credit card by that much. When the bill comes do I have all ready debited my account by that much and I then pay the bill in full. Unlike Jeff we are not home enough to make having many toys worthwhile so we have a paid for older Corvette and a paid for Pickup. Less bills = less stress It truly is amazing how liberated I have felt with only two monthly payments with interest - a house and a truck.

May 18, 2014 4:52:35 AM

My method varies. When you find yourself digging a hole the first thing to do is throw away the shovel and stop buying things that you don't need. I have a lot of toys that I don't need-boat motorcycle-snowmobiles. I never bought them at a time when I couldn't afford them and if I did take a loan out-paid them off as quickly as possible. The logical thing to do is pay off high interest debt first. That is what I should have done, but I did use the Ramsey method of paying off smaller debts first and then attacking the highest interest rates. good smart blog

May 18, 2014 4:27:51 AM