I used Dave Ramsey’s “Snowball Method” to get out of debt. Basically,
you list your debts “smallest balance-to-largest balance,” pay your
minimums, and then pay extra towards the smallest debt balance.
This method focuses on the “psychological impact of getting rid of
those smaller debts.” There are several OTHER methods for debt
reduction. The MOST popular method is to list your debts “highest
interest rate-to-lowest interest rate,” paying your minimums, and then
paying extra towards the highest debt balance. This method focuses
on the “math” and results in paying the least amount in interest rates.
Whichever METHOD that you use, getting out of debt is about
paying your minimums AND paying EXTRA towards your debts! Personally,
not only did I send in EXTRA PAYMENT, I sent in MULTIPLE EXTRA
PAYMENTS PER MONTH. Here are two VISUAL AIDS which might help
you to “see” how these EXTRA payments work.
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| Income | Week 1 | Week 2 | Week 3 | Week 4 | Week 5 |
| Paycheck 1 | $2,000.00 | ||||
| Paycheck 2 | $1,000.00 | ||||
| Debt Reduction | |||||
| Credit Card 1 | $100.00 | $400.00 | |||
| Credit Card 2 | $100.00 | ||||
| Car Payment | $300.00 | ||||
| Home Equity | $400.00 | ||||
| Bills | |||||
| Phone | $50.00 | ||||
| Cell Phone | $100.00 | ||||
| Electricity | $150.00 | ||||
| Daycare | $500.00 | ||||
| Expenses | |||||
| Gas | $200.00 | $100.00 | |||
| Groceries | $300.00 | $100.00 | |||
| Entertainment | $100.00 | ||||
| Savings | |||||
| Annual Bills | $50.00 | ||||
| Emergency Fund | $50.00 | ||||
| Total Outgo | $1,600.00 | $1,000.00 | $400.00 |
After paying your monthly minimums, simply send in an additional payment, at the end of the month. In our example above, the family makes $3000 per month, receiving one paycheck during the first week and the other paycheck during the second week. As you can see, after budgeting, they have $400 “left over”. But, what if something happens and their monthly “estimates” are incorrect. Perhaps the electricity bill is $50 MORE than they estimated. What does our family do now? Well, if they sent their “extra” payment in at the FIRST of the month, then they have to “find” $50. BUT, if they wait until the END of the month, then they can simply send in $350. So, waiting until the END of the month is a ” better” technique, right? Well… check out the chart below for a SLIGHT modification which might offer a “third” technique.
| Income | Week 1 | Week 2 | Week 3 | Week 4 | Week 5 |
| Paycheck 1 | $2,000.00 | ||||
| Paycheck 2 | $1,000.00 | ||||
| Debt Reduction | |||||
| Credit Card 1 | $100.00 | $100.00 | $100.00 | $200.00 | |
| Credit Card 2 | $100.00 | ||||
| Car Payment | $300.00 | ||||
| Home Equity | $400.00 | ||||
| Bills | |||||
| Phone | $50.00 | ||||
| Cell Phone | $100.00 | ||||
| Electricity | $150.00 | ||||
| Daycare | $500.00 | ||||
| Expenses | |||||
| Gas | $200.00 | $100.00 | |||
| Groceries | $300.00 | $100.00 | |||
| Entertainment | $100.00 | ||||
| Savings | |||||
| Annual Bills | $50.00 | ||||
| Emergency Fund | $50.00 | ||||
| Total Outgo | $1,600.00 | $1,000.00 | $400.00 |
Using the “third technique” of making MULTIPLE EXTRA PAYMENTS every month, you get the BEST of both worlds! First, you get to decrease the amount of interest that you are paying. Why? Interest is charged on your DAILY BALANCE. The sooner your payment is applied to principal, the less interest you pay on your debt. Second, because your extra payments are smaller, you have more control, should your budget estimates be wrong. In our second chart, our family plans to send in $400 in extra payments, but they spread those payments over the final 3 weeks of the month. So, if they get “stuck” in week 5, they can simply send in an extra $150, instead of $200.
Here’s my original post about making multiple payments. Read it for even MORE details.
A few more thoughts:
IF you make multiple payments, be sure to use online bill pay through your checking account. Do NOT use the credit card company’s website! Why? Most (All?) Credit Card companies limit the number of transactions that you can initiate from their sites. Plus, who wants to give a yucky credit card company access to YOUR checking account?!? Not me. Also, if you write checks and mail them, you’re paying $.39 PER extra money. That’s just throwing good money after bad!
Who pays $500.00 for daycare are they nuts?????
Renee… That’s 500 per MONTH. That is not unusual at all…
How can the ones paying 500.00 a month to daycare make ends-meet? That just seems very high to me. Say you pay 500.00 to daycare and then have 500.00 in credit card bills how could you ever get by??