Updated on 01.31.07

31 Days To Fix Your Finances, Day 14: Get Rid Of Debts (Slowly But Surely)

Trent Hamm

The Simple Dollar offers a month-long plan for fixing your finances. All you need is an open mind and an hour each day.

Yesterday, we took our “true” budget and set it up so that we paid ourselves first through an automatic investment into a “dream” fund (or series of funds). Today, we’re going to look at the debts section of the budget – and see how we can go about paying down our debts, so that we have more money to direct towards our dreams.

The “debts” section of your budget should list a number of debts that indicate all of the money that you owe to others. This doesn’t include the minimum payment for each one; we are listing those as “expenses” until each one is gone. You should also have a zero balance in the debt section for all but one of your debts.

Each month, when you go through your monthly bills, all you have to do is pay that amount extra on that expense. Let’s say the only debt you have listed with an amount next to it is a credit card with the amount of $200 next to it. You also have an expense for that credit card, which has a minimum payment of $40. When you go to write the check to pay for that card, write the check for $240.

It will take several months, but soon you will pay off that first debt. When you do, it’s worth celebrating, because you can eliminate both an expense (the minimum payment) and a debt (the extra payment) from your budget. When you do that, take that combined amount (the sum of the minimum payment and the extra you were paying each month) and apply it to the next smallest debt amount. So, let’s say that after you paid off that credit card, your next smallest payment was an auto loan. In your “debts” section, you would put in $240 next to that auto loan. You’ve already budgeted for it, so it will make no difference in your day to day life other than the good feeling of knowing your debts are disappearing.

This technique is commonly known as the “debt snowball,” a term coined by the popular radio host and author Dave Ramsey. I’m actually using a variation of the debt snowball in my own life, modified a bit to leverage risk.

You might want to take some time and calculate how long it will take for your “debt snowball” to roll through all of your debts. Figure out the month when each debt will be paid off, then add on that payment to the next debt and see how many months it will take to pay that one off. Before long, you’ll have a very solid idea of an approximate time in which you’ll be debt free – and debt free is a place where you can take that debt snowball and apply it directly to your dreams.

Tomorrow, we’ll look at what to do when you come in under your budgeted expenses in a month (the system is set up so that you can do this regularly, in fact!).

Ready? Let’s continue on to the next day.

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  1. Charlotte Wilson says:

    Thank you so much for your efforts to help others like myself to become “debt free”. May God bless and protect you and your family.

    Charlotte Wilson

  2. oftherock says:

    I fit the profile of your readers (25 – 40 years of age with a significant debt burden)…

    I want to do what is right and that is to be debt-free and start living a worry-free life.

    I subscribed through email so that I will have the articles right in my inbox.

    Thanks for sharing your significant insights. Someday I want to write you and inform you that I have cleared all my debts.

  3. Erik M. says:


    I like the article and the way it read and it presented some good strategies for eliminating pesky debt burdens.

    What I did was take your article, make it fit my lifestyle, and then use it to pay off my debt. I thought that by making it fit my lifestyle (I eat out twice a week) and budgeting for it, I could then realize exactly how much I was spending and prepare for it mentally and save the stress of seeing that credit card bill each month.

    When I started, I had $2000 owed on one credit card and $900 on another. I first tallied all my eating out expenses and didn’t tally the rest because I wanted to simplify it as much as I could. I then saw that I used $180 a month in dining and bar expenses. I knew that was a ‘given’ expense that will be there every month. I took the credit card that I used to dine out on (the one with the $2000 balance) and put it in a separate area of my wallet so I knew what card was the card I should use to eat out.

    Then I let the card with the $2000 balance float (meaning I only paid off the minimum payment) and began to tackle the card with $900 balance. Since I knew I had to budget $180 for dining out, I knew exactly how much I could afford to pay on the card with the $900 balance. After knowing that, I paid it off in two months, or $450 one month and $450 the next without changing my lifestyle too much. Now I was able to get the big card paid off.

    After knowing I had $450 extra a month (since I paid off the card with the $900 balance) and the budgeted $180 for dining, I could then use that extra $450 to tackle the $2000 debt load I was carrying. By then, the $2000 debt became $2300 and I only had to make a small adjustment of not eating out twice a month to pay off that card in a quick five months.

    Erik M.
    Daytona Beach, FL

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