Once you realize that you have a problem and you’ve figured out what it is (or multiple problems, if applicable), next begins the often daunting process of educating yourself on the options for fixing your shit.
My most pressing problem was debt. It was monstrous, and it was going to continue to grow for awhile. I had a house with a hefty mortgage, a kid getting ready to graduate high school and go to college and one already there, plus I had voluminous credit card debt from years of living outside of my means. I had made commitments to people that I may or may not be able to keep, but I surely would never be able to keep if I didn’t get a plan together.
So where does anyone go when they have a question and they don’t know the answer? Google, of course. I started with a simple search: “How do I pay off my debt?” There’s a lot of advice out there. Unfortunately, none of it was what I was hoping for, which was, “I will pay all your debt – no strings attached!” Ha. Much to my dismay, they all involved the general theme of “Pay your bills, loser.”What I want to hear: We'll pay your debt-no strings! What I actually hear: Pay your bills, Loser! Click To Tweet
OK, I kind of expected that. But how? There are a few methodologies. One that I was originally considering was the consolidation loan. I figured one payment would be easier to deal with than ten smaller ones. But after digging more deeply I had the feeling that might not be the best choice. Why is that? Because consolidating debt doesn’t fix the problem. In fact, it can make the problem a lot worse. How can that be true? Because a) sometimes you end up paying a higher interest rate than you were on your debt (or parts of your debt) previously, b) you likely will end up making payments on your debt for a longer period of time than you were, thus paying more interest in the long run and, c) it doesn’t change your behavior.
So I ruled out a white knight and a consolidation loan. What else was there? Surprisingly, the other techniques said this: You haven’t been doing it wrong, you just haven’t been as efficient as you could be. Huh, that was actually kind of a confidence builder. I had been doing something kind of right. It made me feel like less of a total idiot. I liked feeling like less of an idiot.
I had narrowed it down to two options. The first was one that I had been loosely trying to do for years, and that was to pay off your highest interest rate debts first. This made sense to me because why should I pay money for basically nothing? I was paying out hundreds of dollars every month in interest just on my credit card debt – hundreds! If I could stop paying those hundreds of dollars to the greedy credit card companies and pay it toward my debt instead it would make such a difference!
The other methodology is the snowball method. This technique involves listing your debts from the smallest amount owed to the largest, regardless of the interest rate. Pay the minimum monthly payment on all of them except the smallest, then pay as much extra as you can on the smallest debt. Once you’ve paid that debt off, take that minimum payment and add it to the minimum payment on the second smallest debt, etc.
At first this one didn’t seem like it would work as well. Why would I pay off a smaller balance with a low interest rate vs. a larger balance with a higher interest rate? For one important reason: psychological gratification is a very effective motivator.
OK, great. Got a plan. Now what?
On to Step 3: Act!
PS – If anyone wants to say to me, “I will pay all your debt for you – no strings attached!” please leave a reply below!