03/01/2023
After you've saved a starter emergency fund of $1,000, that's when it's time to begin paying off all debt except for your home.
We call this Baby Step 2... The Debt Snowball. This is the one that changes your LIFE.
Here's how to do it:
1. List all of your debts smallest to largest. This means listing them by total amount owed, not monthly payment.
2. Make minimum payments each month on all debts EXCEPT for that smallest one, ignoring the interest rates. (This is about behavior, NOT math.)
3. Let's attack that smallest balance first. Throw all of your extra money at that one debt and watch it begin to disappear! At this point, a lot of people pick up a second job or have a huge garage sale to get things moving even faster!
4. After you've paid off that first amount, keep the momentum going by paying minimum payments on everything like before, but then attacking the second-smallest debt on your list. Since you've paid off that first debt, you now have that minimum payment amount freed up, plus whatever extra money you're working hard to bring in. Put all of that toward the next debt and so on. This is when the snowball really starts to roll! Now, you'll start to see traction and some light at the end of the tunnel. Keep it up and you'll be debt-free!
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Pro Tip: If you're fighting some HUGE balances, it helps a lot of people to set small goals inside of each debt so that they can see and feel the progress each month. Make a chart or a graph where you can mark it every time you make a big payment. It makes this journey fun and helps you remember that you won't be stuck on this step forever.
Baby Step 2 is not easy. It takes a lot of hard work, a lot of sacrifice, and a lot of discipline... but it works, and it's worth it.
YOU CAN DO IT!
