The road to financial prosperity and being debt free can seem quite far away when you’re over $10,000 in debt. Seeing all of those zeroes looking back at you can be scary, if you do not have a plan with a goal. This financial story that I am writing for myself will have a happy ending because I have both and I am determined to make it happen.
This debt did not come about because of crazy spending on anything or everything that I saw. The reason for this debt is that I’ve undertaken a few key projects that required some heavy funding. You see, in my quest to avoid a mortgage for a real estate venture, I’ve been in a never ending cycle of borrowing and paying off and borrowing and paying off small loans for the last couple of years.
But now I’ve had enough and it’s time to get rid of these debts. Thankfully, my projects are almost completed and I am ready to start a new financial chapter.
$10,000 in Debt – A Breakdown
My hope was that I could have had these two debt items written off by the end of 2019. But somehow, these two are different and I’ve found it difficult to get rid of them. I’ve paid off similar debts in the past using a variety of methods including the debt avalanche method. However, I have made peace with the fact that aiming for the end of 2020 is more realistic and achievable.
After checking my statements, my actual debt figure is $12,799. This debt is attributed to a line of credit loan, which has a ridiculously high interest rate and a very low interest small loan/ account balance from a building supplies retailer.
My Plan to Get Out of Debt
To get rid of this debt I will utilise Dave Ramsay’s debt snowball method. I’ve read the Total Money Makeover book, listened to his podcasts and followed his Instagram posts about the debt snowball method.
According to Dave Ramsay, the debt snowball method is a strategy where you pay off your smallest debts first. When you’ve paid off each debt, the money that you were paying towards that now paid off debt automatically goes to the next largest debt.
My plan is to follow these exact steps to get rid of my debt as soon as possible:
Step 1: Make a list of all of my debts from smallest to largest.
Building Supplies Retailer (BSR): $3,066.00
Line of Credit (LOC): $9,733.00
Step 2: Make minimum payments of all of these debts except the smallest.
I’ve already started to push as much money as possible towards the building supplies retailer, whilst making minimum payments on the other debt:
BSR: 650 maximum payment
LOC: 300 minimum payment
Step 3: Push as much money as possible towards the smallest debt until it is gone.
I estimate that with a payback of $650, the building supplies retailer will be paid off by April 2020. From May 2020, I can then send a total of $950 to the line of credit loan.
Step 4: Repeat step 3 until all of the debts are erased one by one.
If all things go as planned, I should be debt free by early 2021.
A couple key points on the debt snowball method are that it should only include non-mortgage expenses and that you should have $1,000 saved in an emergency fund.
I know that this goal of being debt free is achievable and I can definitely do it. It’s important that I remain disciplined and not rack up any additional debt via other loans or credit cards. This means that I cannot go on any shopping sprees or take any trips for a while unless. I’m also challenging myself to earn extra income that can be routed towards this payoff plan.
I’ve decided to take the first step to becoming debt free. Do you want to join me?