Yesterday I wrote about a secret weapon that seems to be lost on millions of Americans who are stuck in mountains of debt and don't know how to get out.
The key is not to let the avalanche crush you, but flip the script and start an avalanche on your debt. This is your weapon. And this weapon is called The Debt Snowball.
I laid out the foundation in my previous post, so if you haven't read that already, go check it out. It is crucial to get out of debt because it's a financial form of slavery – the debtor is slave to the lender. I have a friend who is currently paying as much as a mortgage payment to get rid of student loans. Can you imagine what will happen when that debt is finally paid off? What would you do with that? We have all been duped into believing that debt is just a way of life and is a part of our monthly budget. I'm dedicated to killing that assumption and ensuring that your hard earned income can go toward wealth building and not a life-suck vacuum.
Today, I'm going to provide the next two key steps to gain real momentum and destroy your debt as quickly as you can, which is vital to your financial freedom.
Apply the minimum payment of paid off debts to the next debt that needs to be destroyed. For example, let's say you have already have $200 going toward an initial debt to pay off, say credit card. You had $1,000 to pay off and the minimum monthly payment was $75. Once that debt is paid off, you then apply the entire $275 toward your next debt. Say it is a car loan for $7,000 and you've only been paying the minimum payment on that, which is $250. Now, with the new flood of dough coming in from killing a debt you never have to worry about again, you've essentially doubled your payment on the car loan, cutting the time to pay it off in half! This is the power of the Debt Snowball and why you shouldn't worry too much about calculating pay offs based on interest rates. You will most likely benefit psychologically more from seeing debts destroyed than from working and reworking and reworking math calculations that are as much fun as poking yourself in the eye with needles.
Use additional income toward debts. There are times throughout the year where we come into some cash, whether it be expected or unexpected. It can be a tax return or a raise at work or something that gives you a good bump for the month, like birthday money. Decisions with this kind of cash can be challenging, especially when you've been eyeing new shoes or a trip somewhere. But if you're budgeting monthly, chances are you already have money set aside for clothes or vacation. With that, you should consider giving a good push of the Snowball by taking additional income and applying it toward destroying the debt. Sure, it's not a fun thing in the short term, but when you have no debt in the future, you have a heck of a lot more buying power.
The big idea is that debtors are slaves to lenders. The goal is to get out as fast as possible. The way is through the Debt Snowball. And the time is now!