One of the biggest problem many of us face is debt. Bad debt. The kind of debt we really shouldn’t have. You know the kind I mean. Debt like credit cards and the like. But it doesn’t have to be that way.
The best way to get out of debt fast that I have heard is from Dave Ramsey. In case you’ve never heard of him, he’s the author of Total Money Makeover. Dave calls his method the snowball, and it’s easy to see why.
What you do is pull out as sheet of paper and list all of your debt in order of the amount owed. In this method, the interest rate is not important. The total owed is the key. Each month, you pay the minimum amount on all the debt. If you can spare any extra, you apply that to the debt with the lowest balance owed. This way, you get that one paid off as fast as you can.
Once you have the lowest balance paid off, take the amount you were paying for the lowest, add it to the minimum you were paying on the next lowest balance, plus any extra you can spare. Now that the first balance is paid off, the second balance is getting paid even faster. Once that debt is paid off, take the amount you paid for the smallest two balances and now apply them to the third smallest, plus any extra you can spare, until it is paid off. You keep following the pattern until you have paid off all the debt.
The reason this method works so well is that you can see progress very quickly. By continuing to use the same money you were already paying anyway, plus a little extra, the larger debts get paid off faster and faster. Each debt disappears, bringing you relief with each new one eliminated.
Once you have paid off your debt, setting up an emergency fund should be very easy. Take all the money you paid on all that debt, once it is paid off, and set it aside for the next few months. With your debt paid off, if you take a look at all your necessary expenses and figure out how much you would need to cover the 3 to 6 months. This should be the minimum amount you have set aside for your emergency fund.
The snowball method is the best way to get out of debt fast. Using it, you not only pay off all your debts quickly, but you can also establish an emergency fund to help keep you out of debt. With your debt gone and an emergency fund established, you will be well on your way to building your success, one block at a time.