How’d your week go? Did you prioritize your debts? How did you decide which one to pay off first or last? Did you think about why you’re doing it that way?

When my husband and I were in the throes of paying off our consumer debt, we would battle back and forth about which debt to pay last—the home loan or the car. Each one had its own pros and cons and eventually, we decided to go with paying off the car last. We did this for two reasons: 1) we’re planning on selling our house and having the home loan would not be beneficial and 2) we were going to take the car with us when we moved; we wanted to pay off everything that was staying.

As far as deciding what to pay first, we opted for the smallest balance. We needed those psychological victories to keep us going (plus, that’s what Dave Ramsey said to do).  What also helped was having a spreadsheet that I updated each month with the new balance totals, plus a calculation of the total amount of debt paid off. When we would have a slow month, it would help to look at the overall picture for a little boost.  This worked, too, because about $60K later, we’re consumer debt free!

Finding money

This week we’re going to talk about ways that we paid off our debt. I’m not talking about cutting back on luxuries or getting part-time jobs or having a budget (which we did); I’m talking about methods we used to apply that extra money to our debt. The methods are pretty simple. Seriously, if we were able to use them then anyone can. It’s that easy.

Here’s what we did:

• Snowballed payments. Made famous by Dave Ramsey, this is where you pay off one debt and roll the amount you were paying on that debt into the next debt, creating a larger payment for that next debt. This goes on and on. This was extremely effective for us in the beginning, before we had part-time jobs. It was an easy way to come up with more money to pay on a larger debt.
• Rounded up. This was also an effective method for coming up with more money in the beginning. Basically, if we had a bill that was $257.58, we would pay $260. It wasn’t much toward the overall balance but at least it was something. And, it made us feel like we were tackling all of our debt at once. Even as the balance would go down, we would stick to the same rounded up payment (especially for our car. We kept the payment at $330 every month even if the minimum payment due was $288.42 or whatever).
• Made lump sum payments. Sometimes it was fun to make a minimum payment while stockpiling cash to make one giant payment. We found there was something satisfying about making a $12000 payment on a debt all at once. It was also fun to watch our savings grow because, although we knew it was going towards debt repayment, it taught us that we could save large amounts of money.
• Snowflaked our debt. Every time we came into a little extra money, whether through odd jobs or unexpected money in our paychecks, we added that money to our debt. Sometimes it was just a few dollars but it felt good to make an extra payment, knowing that even that little bit of money was making a difference.

Task for this week

For this week, I want you to determine what method you want to use to apply money towards your debt. It doesn’t have to be something listed here. It can be something you come up with on your own.  It can be a combination of methods.

It’s important that you know how you’re going to pay down your debt. Having that plan ahead of time makes it easier to implement.

It’s week 4! Can you believe there’s only 48 weeks left?

This week provided some challenges for me. I was a bit worried about my bill paying schedule since my husband started a new job. We’ve been working for the same company (our state) for years so our paydays have always been the same. It’s why I’ve been able to develop the schedule that I have. But with his new job, we were unsure if he was going to be on the same pay schedule or a different one. Fortunately, our paydays are still the same so I didn’t have to make any major revisions. That was a huge relief!

I did work on a schedule for my writing. In addition to this site, I own and operate my own site and write for several others. It’s been hard balancing all of the writing jobs with my full-time job so one day, I sat down with my calendar, looked at my agreed upon deadlines for the other site owners and crafted a schedule so I never again miss a deadline (I hate missing deadlines. To me, it’s like not fulfilling a promise). I even had to renegotiate with some site owners regarding deadlines. And you know what? It worked! Now I can meet my deadlines and the site owners get their content. Everyone wins!

So, how’d you do on creating a schedule? What worked for you? What didn’t?

The next steps

Now that we’re organized, have a system and a schedule, what do we do next? Well, now we’re actually going to dive into looking at our money in-depth. Over the next five weeks, we’re going to pour over the nasty details of our finances and figure out what do with all of it. This week, we’re going to talk about prioritizing our debt payoff.  Next week, we’ll discuss ways to pay off our debts (think snowflaking, lump sum payments, etc). The following week, we’ll talk about scouring our bills and paychecks for charges, fees, and assorted other variables that cost us money every month. The week after that, we’ll look at ways to most effectively use our paychecks and find extra income. And during the fifth week, we’ll talk about creating a budget and why it’s important.

Prioritizing our debts

When we got organized, we tallied all of our debts and listed them out according balance, creditor, interest rate or whatever detail you chose. Now that we have that information in front of us, we can now devise a plan to deal with them. Clearly, the ultimate goal is to not have any. But we have to start small.  Pick one debt that bothers you the most and focus on that.

Dave Ramsey, and many others, advocates picking the debt with the smallest balance, tackling it and, when it’s paid, rolling that payment into paying down the next smallest. It’s most commonly known as the snowball method. It’s the method I used to pay off my debt and it works! Psychologically, it was nice to see some progress right away and it was an easy way to find extra money for all the other debts. But what if you have a debt that’s pretty large and nagging at you? What if you have a debt that’s preventing you from being able to sell your house or one that’s just been an albatross around your neck for years?

I say—go for that one. This is your debt repayment plan. You get to determine how you pay off your debts, at what pace you want to pay them off, and, most importantly, in what order. Dave Ramsey provides excellent guidance and a terrific framework but you don’t have to listen to him. This is your path to prosperity and it’s fine to play by your own rules. I only suggest that whatever order you develop, stick to it. Try not to let yourself get derailed in the middle. Set concrete goals, target payoff dates, and stay with the order you set.

If you’re in a relationship, make sure that your partner is on board with your priority plan (married or dating, if you’re part of a couple, the other half is going to be affected by your debt repayment. Make sure you share and that you’re on the same page). Discuss the plan with your partner and if there’s a disagreement about the priority order, stay calm. Don’t yell, listen to each other and come to an agreement (or compromise).

Task for this week

For this week, I want you to think about your debts and prioritize them. Which one do you want to pay first? Which one are you OK with paying last? While you’re doing it, think about why you’re putting them in that order.  The why is often just as important as the when and how.