Want to know the best way to get out of debt fast?

Credit CardsOne 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 Cutting up a credit carduse 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.

12 comments… add one

  • Bryce Christiansen September 12, 2011, 12:51 pm

    Great tips. I think it’s wise to pick up the smallest debt first since it will give you the necessary confidence that you can get out of debt. I’ve read other strategies that had you pay the highest interest first and then continue to add the money from that one to the others like you described, but this one seems to be a better motivator.

    Excellent tips.

    Bryce

    Reply
  • Grady Pruitt September 12, 2011, 4:11 pm

    I think that’s one of the reasons why the strategy works so well. With the “highest interest” method, you don’t feel like you’re making progress, but with the “highest balance”, you see results faster as you knock off debt after debt. And sometimes, those high interest debts might be your biggest, so it take longer to take it “off the table.”

    Thanks for stopping by!

    Reply
  • Dave@Financial Freedom Advantage September 12, 2011, 8:08 pm

    You may want to also consider saving up a small emergency fund first before you tackle the debt. That way, if an emergency does come up, you won’t be derailed from paying off your debt.

    Reply
  • Grady Pruitt September 13, 2011, 12:28 am

    Absolutely, Dave! Having 500 to 1000 (this is the amount most have as their deductibles for insurance, in case you’re wondering) to start with can really help keep you from getting derailed. But, even if you didn’t have that to start with, as long as you start paying off the lowest balance first, then apply that minimum with the minimum on the next one on the list, you’ll start seeing progress pretty fast, just by putting a little more than you already are starting with the smallest and paying what you would have anyway.

    Thanks for stopping by!

    Reply
  • Candice Michelle January 27, 2012, 5:26 am

    Good point Dave! That is such a nice idea. I think having an emergency fund will serve as a big help in the future. Thank you for sharing such helpful tip.
    Candice Michelle recently posted..הכנה לכיתה אMy Profile

    Reply
  • Grady Pruitt February 7, 2012, 2:06 am

    Having an emergency fund before tackling your consumer debt is a fantastic idea because it will help keep you from getting derailed by “sudden” or “unexpected” expenses.

    Reply
  • Michael Harrington@ Internet Marketing Techniques September 15, 2011, 1:38 am

    Hi Grady,
    What an excellent strategy!
    I wish I new this years ago when I first left home.
    Anyone in debt has to read this post.
    Well done.

    Reply
  • Grady Pruitt September 16, 2011, 12:24 am

    Thank you, Michael This really is a great strategy. I think anyone who has a lot of debt should try it, because it can really help out. (It’s a good strategy if you only have a little debt, too ;)
    Thanks for stopping by, Michael!

    Reply
  • Bill@credit check online September 27, 2011, 9:44 pm

    I think one really good way to get out of debt quickly is to change your credit card to a debt card. It really worked wonders for me; now i am going on 2 years being debt free :)
    Bill@credit check online recently posted..Veda Credit CheckMy Profile

    Reply
  • Grady Pruitt September 28, 2011, 9:31 am

    Excellent point, Bill. That is the first step. Stop accruing more debt.

    Of course, you want to make sure you have money to cover. Overdraft fees can be just as much trouble.

    Thanks for stopping by!

    Reply
  • Julie Hayes October 14, 2011, 4:40 am

    The method is very good on how to pay off debts as quickly as possible, the only problem is self control and motication to pay that debt.
    Julie Hayes recently posted..יוגה תרפיהMy Profile

    Reply
  • Grady Pruitt October 14, 2011, 12:54 pm

    True, Julie. Though most people, if they can just keep the self control up to get the couple of debts off the table, will get even more motivated to stick with it as they see those debts paid off quickly.

    Thanks for your comments!

    Reply

Leave a Comment

CommentLuv badge