Quick Review of the Visual Budget Steps
Let’s do a quick review of what we set up so far with the visual budget:
In Step One, we listed the months for the year and the income we’ll use for January’s bills. We also picked some colors for our spending map.
In Step Two, we put the one goal we will focus on until it’s finished.
In Step Three, we listed everything we receive a bill for, leaving off non-mortgage debt for today.
Today in Step Four, we attack debt and make a plan to pay it off.
A Fresh Perspective on How to Get Out of Debt Fast
Two of the most popular ways to get out of debt are paying debt off highest interest rate to lowest interest rate and smallest amount to largest. Both continually add the paid off payments to attack the next debt until all are paid off. Here are my humble thoughts on it based on what worked for me, paying off tens of thousands of debt.
The highest interest rate to lowest interest rate payoff never motivated me. I didn’t care about the interest rate when I bought it so why would I care about it while I was paying it off? All I cared was, “Oh, you’ll give me 15% off of my purchase? Okay.” Or “Nothing down and no payments for a year? Sign me up.” I didn’t care what the interest rate was, what the payments would be, or what the total was, because, “I’d pay it off with my next check.” So, why would digging through credit card statements and applications to find the interest rate, then sort by interest rate motivate me to get out of debt? It certainly didn’t.
The smallest to largest in general worked for me. I felt good when I paid off each debt. I felt like I accomplished something. I really saw a path and plan out of debt that worked. Dave Ramsey’s Debt Snowball worked well for me. Put your debt in order of smallest to largest. If you have tax debt, pay that off first. Put that at the top. Then, I made two changes to the plan that were helped me get rid of debt even faster.
Pay It Off in Order of What Pisses You Off the Most
Which debt makes you so mad you wish you could have been done with it yesterday? What debt when you pay it off will you jump in the air and pump your fist? What debt would transform your relationships? For me, it was paying off my mom. Loans between you and family and friends morph your relationships into lending relationships and can destroy relationships.
You are beholden to that person. The person you owe the money to will judge every single spending decision you make because after all, that’s money you could be paying her back with. The person begins to believe they can control your life because she lent you money. Now all interfamily lending begins well-intentioned and well-meaning. You have no control over how being in debt to someone else or someone to you changes the relationship. Even if your family member says, “Don’t worry about paying me back. Pay me back when you can.” Even if she means that, in her mind, she still thinks like a lender and you the borrower. I worked harder and sacrificed more than I ever had to pay my mother back FAST. It brought our relationship back to equilibrium and gave me my freedom back.
Now, remember, I said what pisses you off the most. If you have collectors calling you, don’t swing your budget around based on fear or anger they instill in you. You make your debt pay off plan based on what pisses you off and work that plan.
If You Can Sell It, Put It at The Bottom
If you can sell the item and are deciding whether to sell it, put it at the bottom. Attack other debt first. Selling it of course will reduce your debt. Another thing to put at the bottom, cosigned loans. You may or may not have to pay that debt. If you are in cosigning hell, where the person isn’t paying, take back the item and sell it to get rid of the debt.
Find you’re motivation to pay off debt as fast as possible and do it.
Live below your means for a richer life.