You are here: /

Take on Debt with the 10-10-80 Plan and the Debt Snowball Method

Share this article!

Facebook
Twitter
LinkedIn

MANAGE DEBT USING THE 10-10-80 PLAN AND THE DEBT SNOWBALL METHOD Let’s face it: Repaying debt is unpleasant.

It seems that just as you are beginning to get your finances under control, some unexpected expense blows your budget out of the water, leaving you to pick up the pieces of your now-shattered psyche after realizing that you have just set yourself back a whole year.

That’s how I felt a few weeks ago, at least.

When I needed to bring my car into the dealership because the airbag light was on, I was in the middle of creating my budget for the upcoming year. Reprogramming the module, the service advisor informed me, should solve the problem. I had just received some birthday money, so the costs weren’t quite as high as they could have been.

I stayed at the dealer for the following hour till the advisor returned and informed me that they would need to repair a module because it didn’t work. The cost was $650.

I started to feel dizzy and gulp for oxygen at this point. Well, not really, but I wasn’t having a good time. That was nearly three full car payments, and I was bidding it farewell because of a single failing component.

What a frustration!
debt snowball plan and 10-10-80 savings plan

Budgeting: Where to Start Before delving into the 10-10-80 savings plan and the debt snowball strategy, we must gain a firm understanding of budgeting. No, making mental calculations and occasionally checking your online account are not good budgeting techniques. To know what needs to be paid and when, you need to locate a budgeting system that is written down or typed out.

Check out this bill tracking sheet if you’re seeking for some tools to organize your finances and expenses.

Here is a straightforward budgeting table to get you started that will help you keep track of different expenses including student loans, credit card payments, and travel costs:

debt snowball method

DEBT REPAYMENT: TWO OPTIONS There are many strategies to pay off debt, but I wanted to concentrate on two that have been proven to be extremely effective for many people.

METHOD OF DEBT SNOWBALL Dave Ramsey developed the debt snowball method, which has assisted thousands of people in eliminating large amounts of debt, some on very meager salaries. In order to use this method, the person must list all of their dates in order of greatest to least:

Initial Student Loan: $1,500 Second student loan: $2,700 Car: $7,850 This process would be continued until all of your debts were ranked from least to biggest. When you’ve finished, you must then record the minimum payment for each one:

Loan to Student #1: $50 Second student loan: $100 Car: $250 Once you’ve recorded these data, you may start using the debt snowball strategy.
Step 1: Pay off your smallest debt first and move on to the next one.

Your whole focus in the first stage of the debt snowball method is on paying off the account with the lowest balance. The first student loan in this instance had a balance of $1,500 and a $50 minimum payment due each month. Say you had $50 more each month to spend. You save the $50 and apply it to the first debt rather than purchasing lunch at work or a morning coffee. You are currently paying double the required minimum, which will enable you to pay off the debt considerably more quickly.

What payments am I supposed to make on the other accounts?

According to the debt snowball strategy, you should pay the minimum balance on all other accounts to make the initial one disappear as quickly as feasible.

Step 2: Continue with the second-lowest debt balance and lean on your prior payments for support.

The debt snowball strategy really starts to come into its own at this point. It’s time to tackle the second account now that you’ve settled the first one. Assume you continued making $100 monthly payments on the student debt until it was fully repaid. You have an extra $100 to spend now that the account is free of debt. You now utilize the $100 on top of the minimum payment for the second account, which is the student loan #2 in the example, rather than spending it on a new dress or accessory (although I realize it might be tempting).

You no longer pay $100 each month, but $200 instead! The debt snowball strategy not only helps you pay off your debt more quickly, but it also saves you a ton of money on interest that may otherwise have accumulated.

Step 3: Continue the debt snowball strategy up until debt freedom.

After finishing the first two accounts, it’s time to focus on the significant car expense. While paying off the other obligations, you had been making the minimum $250 payment, but now you had an extra $200 to spend toward the car payment.

Is your brain beginning to hurt from all this budgeting? Visit Dave Ramsey’s website, where you can find a special

Top posts

Recent Posts