There are two key steps to paying off your debts in a reasonable amount of time.
Step 1: Stop creating new debt
Step 2: When a debt is paid off apply the payment to another debt
That’s called “snowballing.” Imagine you have 5 credit cards and you’re paying $100 on each one every month. That’s $500 in total payments. Several months down the road one of the cards is paid off. You may be tempted to relish in the fact you’re only paying $400 a month now in credit cards but the smart thing to do is keep paying the full $500 on the credit cards until they’re all paid off. By the time you get to your last card you’ll be paying off $500 a month on it.
Snowballing of course assumes that your level of income won’t go down and that you can live comfortably at your current level of income.
Otherwise you’re going to have to take the money you were paying on the now paid off credit card and pay regular living expenses.
I did a little experiment and snowballed my credit cards, my mortgage and my student loans. By snowballing all the payments starting with the credit cards and ending with the house I would be debt free in 17 years. I’m in the process of creating the “Bank of Ben” which will be a personal finance site. One of the features that it will have is to be able to show you how to snowball to save the most amount of money and get out of debt the fastest. It’ll show you month by month how your payments are being applied.
You’ll also be able to track your credit card debts, student loan, home and vehical debts and put together a budget. The site won’t require your usernames or passwords to your various accounts. I’d rather do a little more manual work than risk having financial account information stolen.
