I have known about this method of becoming debt free for a while now, its pretty simple and although people have shown interest in it when I have told them about it they haven’t asked for details. Here is a pretty good place for purging and sharing.
Here’s what you do.
- Make a list of all your debts and list them from the smallest to the largest.
- Keep paying the minimum on all of your debts through out your time trying this.
- While doing this find a way to reduce your outgoings by around 10% of your net monthly income. (turn the heating down a notch, eat less takeaway, drive more sensibly, stop going to starbucks catch a bus, walk to the corner shop – however you do it, make a plan to scrape this together)
- Now pay the 10% you have scraped together in addition to the normal minimum payment on your smallest debt (the first on your list from step one).
- Keep this going until you have paid this off completely.
- Now the fun starts. Now take your 10% you will have got used to scraping together each and every month AND what was the minimum payment of the first debt (now cleared) and use both of these to start paying off the next debt on the list.
- As you clear this debt, add the minimum payment of this second debt on your list to the minimum payment of the first debt and your 10% that you have scraped together and start paying the third debt on your list. … etc.
By the time you clear two to three credit cards and a loan you will have a huge amount to use against your MORTGAGE (oh yeah!). When you get to this stage you will find that you can reduce a 25 year repayment mortgage to between 7 to 13 years depending on how much debt you were in in the first place. The funny thing is that as long as you can actually afford to run this system at the beginning, ie pay the minimum each month and find your 10% you will find that the more debt you had at the start the more you will have to pay towards your mortgage in the last stage – and the quicker you can be debt free. (and thats TOTALLY debt free!)
I can’t pretend that I invented this, I didn’t. It’s called many things on the web but “Debt Snowballing” is the most popular name.
I have been meaning to share this here for a while. If this helps someone then mission accomplished.