The debt snowball method is very motivating because you start to see results of your efforts quickly. To get started, organize all the debts that you have from lowest balance to highest balance. Ignore the interest rate at this point. Next, pay the minimum payment on each of your debts except the one with the lowest balance. Pay as much extra as you can on the debt with the lowest balance. Often, when people are trying to pay off debt, they pay a little bit extra on each account. This doesn’t make as much sense long term. We are trying to eliminate balances, and apply that payment to the next one. Once the first debt is completely paid off, take the payment plus the extra you were paying and apply it to the next smallest balance. This feels so good to eliminate a debt, and move on to the next one! It is easier to continue a hard thing when there are satisfying milestones along the way. So, at this point, you are paying the minimum payment, plus the minimum payment of the last card as well as the extra amount you were applying to that balance. This snowballs fast and as you continue on this route, you will begin to pay your debts off faster than you had planned. Debt snowballs work wonders. My husband and I paid off 16k in debt in a year and a half, making very little extra money. We had to sacrifice a few things in order to have extra money to be able to apply in the first place. We went out to eat once a month, instead of once a week. We also ordered water and shared a larger meal. We also cut out extra projects and found free or discounted things to do for entertainment. It required sacrifice and discipline, but ultimately, it was well worth it. It was very motivating and quite satisfying to pay each card off. We started cerimoniously paying them off together and celebrating with dessert.
The half payment method is where you take a regularly occurring payment you have and you divide it in half. For example, let’s say you have a $300 car payment you need to make each month. Instead of sending in $300 at once, you only send in $150 and then set aside the other $150 (or whatever half of your bill is) at the beginning of the month. You then make the other half of the payment toward the end of the month. By the end of the month, you will have sent in the full $300 by the due date, but you will have been able to break up the payment into two smaller payments. If your creditor allows you to do this, as long as you get both smaller payments in on time, it may be able to benefit you. Here is a break down of how it works if you receive a bi-monthly paycheck (using the $300 car payment example from above): Paycheck #1: $600 Half payment for car payment: $150 Total left from paycheck #1: $450 Paycheck #2: $600 Half payment for car payment: $150 Total left from paycheck #2: $450 What is the purpose behind using this system? Take a look below at what happens when you don’t use the half payment method. Paycheck #1: $600 No half payment Total left from paycheck #1: $600 Paycheck #2: $600 No half payment Full car payment: $300 Total left from paycheck #2: $300 Although you may not think there is much of a benefit from paying the full bill now or doing half payments twice a month, the half payments can actually be really helpful. If you pay the full amount on your payment (like option two above) you have lost an additional $150 from your second paycheck. You can argue that in your first paycheck you would gain $300, but that means there is so much fluctuation in your incoming and outgoing money. When you pay off an entire payment all at once, you are more likely to spend more money because you think you have a lot to spend. Using the half payment method, you would have your car payment taken care of and also not feel like you have to scrape by at the end of the month. Overall, your finances would become much easier to manage.