This is Part 5 of Deliverance from Debt: Part 1, Part 2, Part 3, Part 4
It’s time to attack that debt. You’ve laid the groundwork by tallying up how much debt you have, tracking your spending and developing a budget. Now it is time for strategy and tactics. Everyone has an opinion on how you should get out of debt. I say choose the method that works for you, critics be dammed. Getting out of debt is a numbers game, but it’s not that easy. Let’s get planning.
Step 1 – It Never Hurts to Ask
Call your credit cards and ask them to lower your rate, it won’t hurt to ask. If you’ve been a good customer, they might consider it. Tell them you are mulling a better card from another bank, they don’t want to lose your business. If you have a history of late payments and overdrafts, you won’t have much luck at first. Pay your bill consistently and on time for several months and then try again. Late payments have a big effect on your credit score, as your credit improves you can negotiate better rates.
Prioritizing Your Debts
There is a minimum amount you have to pay each month to each creditor. At first I had you lay out a budget using only those minimum payments. In my example budget there was $70 left over at the end, hopefully you have a little left as well. If you don’t have extra, look at those discretionary expenses again. Didn’t you make a commitment to getting out debt? But - don’t stress if you can only make the minimum, celebrate all progress.
You probably have several debts you want to erase. It could be fixed installment loans like student and car loans or revolving debt (where the balance can go up and down) like credit cards. Each has different interest rates, rules and minimum payments. Which debt to focus on is your choice. The goal is to get out of debt, no one says you have to do it a certain way. But there are some logical plans of attack you should consider.
The SnowballThis is the Dave Ramsey classic, list your debts in order from smallest balance to largest balance. Any extra money should be put towards the debt at the top of the list, the one with the smallest 
balance. You can pay that one off more quickly – a psychological boost. Once debt 1 is destroyed, you take that entire payment and add it to the payment for debt 2. You continue this cycle on down your list, applying the former payment to the next debt. This is the snowball, you keep making the same total payments but the amount applied to each debt grows successively larger. The problem with this method is that it ignores interest rates, meaning you may be paying more in interest.
balance. You can pay that one off more quickly – a psychological boost. Once debt 1 is destroyed, you take that entire payment and add it to the payment for debt 2. You continue this cycle on down your list, applying the former payment to the next debt. This is the snowball, you keep making the same total payments but the amount applied to each debt grows successively larger. The problem with this method is that it ignores interest rates, meaning you may be paying more in interest. The snowball concept can be applied to any debt strategy as a way to speed up your payoff. You might be inclined to slack off after closing out one account, to use the money for something more fun. You can do that, but it will take you longer to get out of debt.
The Interest Minimizer
List your debts in order from highest interest rate to lowest. In order to pay the lowest total
interest, focus on the highest rate account first. Apply any extra money towards that top debt until you have paid it off, you are only making minimum payments to your other debts. Once the top debt is gone you apply its payment to the next debt on your list, the snowball. The problem with this method comes when your high interest account also has a high balance. It can be discouraging to spend years chipping away at that large balance feeling like you are not making progress. You might also be ignoring a debt with a similar interest rate but smaller balance, one you can tackle more easily. For the mathematic in you, this is the method to choose.A Single Focus
s there one debt on that list that gets under your skin more than the rest? Is there one debt you can’t stand to look at? Guilt, anger or sadness are valid reasons for choosing one debt over another. Feel free to focus on that debt, you’ll feel great once it’s gone. It may not make logical sense, but getting into debt didn’t either. You can insert the snowball for maximum effect, focusing on your next most annoying debt.
Spread the Love
Want to tackle everything, then split up your extra money between your debts. This way you 
are accelerating the payoff, and making progress, on all of them. If you have multiple debts with similar interest rates and balances, this may be the way to go. There are a few drawbacks to this method, it may take a long time to erase any one debt from your balance sheet. Staying motivated is a big hurdle you’ll have to overcome and slow progress can be discouraging.
are accelerating the payoff, and making progress, on all of them. If you have multiple debts with similar interest rates and balances, this may be the way to go. There are a few drawbacks to this method, it may take a long time to erase any one debt from your balance sheet. Staying motivated is a big hurdle you’ll have to overcome and slow progress can be discouraging. The Most Important Method
The road out of debt will be filled with obstacles and setbacks. Emergencies will happen at the worst times, your balance may start creeping back up. You need to persevere, keep at it even when nothing works as you planned. No matter what method you choose, keep putting one foot in front of the other. Keep working to pay off your debts and eventually you will reach that goal.
Part 6: Speeding up the Payoff
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3 comments:
Is there one debt you can’t stand to look at? Guilt, anger or sadness are valid reasons for choosing one debt over another. Feel free to focus on that debt, you’ll feel great once it’s gone.
I hadn't thought of it that way before, but I love it!
Hi there-such a fabulous post and very motivational for anyone who wants to tackle their debt once and for all!
I think you've hit the nail on the head with the last comment about persevering through set backs. But one thing I'd like to add is that when snowballing, the first big test is after you pay off the first debt. Will you have enough will power to roll the entire payment to the next debt? I thought I would but I'm now having my doubts...
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