After establishing an emergency fund, my wife and I began to eliminate our debt. Here’s what we did.
We made minimum payments to all of our creditors. We never missed a payment and all payments were made on-time.
We listed our creditors in order, by balance owed, smallest to largest.
We attacked the first balance on our list, by sending principal-only payments to our creditor. Click to read about our success in paying off that first balance. Eight years later, this post still makes me smile!
We then attacked the next balance on our list. Since we no longer had to deal with the first balance, we had more money to attack the second balance.
We then attacked the next balance on our list. Wash. Rinse. Repeat.
In less than a year, we were debt free.
This method, commonly referred to as the debt snowball, really worked for us. We fed off of the momentum that came from small successes.
The interest rates on all of our accounts were pretty similar. We needed the psychological boost that came from seeing entire balances eliminated. Situations vary, but this is the system that worked for us. (Many others have succeeded using a similar method, but arranging balances based on interest rates, highest to lowest.)
It felt great to pay off that first debt. It took focus, sacrifice, learning how to budget, and teamwork, but we managed to pay it off – and we never looked back. That debt is now in our rear-view and we never have to deal with it again.