I started No Credit Needed as a place to track our progress while getting out of debt.Â Here’s what we did to pay off our credit card debt, step-by-step:
We created a zero-based budget.
We established a savings account for our $1000 emergency fund.Â While getting out of debt, we had two mini-emergencies and were very thankful for our emergency fund.
We listed our debts, smallest balance to highest balance.
We chose this classic snowball-method, because it suited us.Â We liked the victories associated with paying off those smaller balances, quickly.
We made minimum payments to all of our accounts, on time.
We made an extra, principal-only payment to the first account on our list.
Throughout the month, as we spent less than expected or earned extra income, we made additional, principal-only payments to the first account on our list.Â I called these micro-payments.
Once an account was paid off, we focusedÂ to the next account on our list.Â The minimum which had been assigned to the first account was then snow-balled into the second account.Â In other words, the total amount budgeted for debt reduction, each month, was not reduced, throughout the process.
We continued, paying off accounts, snow-balling minimums, and making extra payments, until we had eliminated all of our credit card (and automobile) debt.
We also used a balance transfer to reduce the interest on our highest rate card.Â We made sure to pay off the balance transfer before its lower rate period expired.
We are now using a similar system to pay off our home mortgage.
I will forever be grateful for my readers, especially in the early days, for encouraging us as we worked to pay off our debts.Â I’m also thankful for Dave and his snowball method – and for my fellow old school pf blogger friends.