Be honest and think about what you would do if you didn’t have that car payment? Or that student loan payment from 15 years ago you still have? Or maybe the 30-year mortgage that you can’t seem to see the end of that’s getting in the way of you ultimately becoming debt free? Paying debt sucks and it especially sucks when you have to pay the interest that is attached to the debt. Hence, this step-by-step guide my wife and I used that will show you how to get out of debt.

I am most proud of my achievement of not having any consumer debt to pay each month. As we diligently work to pay off my wife’s student loan debt I have gained a new appreciation for the goal of becoming debt free. Starting is the hard part. However, if you follow some of the steps I’m going to lay out you’ll be debt free in no time. That is a great feeling to have.

Relax, it’s Okay

First, relax. Whether you’re looking at $3,000, $30,000 or $300,000 of debt just take a deep breath and relax. You will get through this. No matter how big the hole is that you’ve dug for yourself you will get out if you just do a few things right. And on your last payment for the last bit of debt you owe you will be so thankful that you embarked on this journey of becoming debt free.

Debt Snowball

There are so many “experts” who try to teach you how to get out of debt. My absolute favorite way of knocking down debt is the debt snowball. This method is simple and as you all know I like simple. The debt snowball method of paying down debt helps you significantly reduce the amount of time it takes to pay all your debts. You don’t have to take my word for it. You can read this Harvard study for further proof. There’s also the great advantage of saving a lot of money on interest when using the debt snowball method.

What I like about the debt snowball method is that it helps you build little victories. You gain momentum after each debt is paid off and benefit psychologically. My wife and I are living examples of how effective the debt snowball method can be in becoming debt free and achieving financial independence. So, let’s see how the debt snowball method works:

1. List all your debts smallest amount to largest.
2. Pay the minimum on all debts.
3. Once the smallest debt is paid, you take that payment and add it to the next smallest debt owed.
4. After each debt is paid off you continue to take those payments and add to each remaining debt until you have one large amount to pay off the biggest and last debt.

Debt Avalanche

The other popular method of paying down debt is the debt avalanche. The same idea applies here as the debt snowball method, except you list your debts in order of interest rates highest to lowest. The goal is to pay off debts with the highest interest rates first. Theoretically, this method saves you a little more money than the debt snowball way. Usually the difference in savings between the snowball and avalanche methods is not much. You will have to use the debt payment tool later discussed here to see what’s better for you. Alright, here are the debt avalanche steps:

1. List all your debts from highest interest rate to smallest.
2. Pay the minimum on all debts.
3. Once the highest rate debt is paid, you take that payment and add it to the debt with the next highest interest rate.
4. After each debt is paid off you continue to take those payments and add to each remaining debt until you have one large amount to pay off the final debt that had the lowest interest rate.

Best Method to Becoming Debt Free

I’ve looked at both methods and without a doubt I can say the debt snowball method is the better way. You save a little  more with the debt avalanche, but you stay more motivated with the debt snowball method. Remember, Harvard already confirmed this! Their conclusion was the same conclusion that I came up with and personally put into action. The debt snowball is the best method to becoming debt free.

You get small wins that keeps you motivated. Finally, you have one debt left that you’re attacking with a vengeance. That’s where we are now. We knocked down hospital debt, stuff in collections, my student loans, a car note, and now we have only my wife’s student loan debt. And we are definitely attacking that last student loan with everything we have. That will surely be an article I can’t wait to write about.

Debt Payment Tool

Okay, so you’re ready to start paying down your debts? Awesome! Now you just need a debt payment tool right? No worries, I’ve got that covered here. And it’s free! You can visit my resources page for the free tool and other awesome free stuff. Or you can just click below to subscribe and get access to the free debt tool and other awesome free financial tools.

Debt Reduction Calculator (Click “Make a Copy)

Once you have access you will get what looks like an Excel spreadsheet. All the numbers you see are made up for educational purposes. So let’s go over how you can get started.

1. First make your own copy to edit.
2. Then you’re going to plug in all your debts and don’t worry about any specific order in this section.
3. Then click on monthly payment and you can either pay all the minimums on everything or you can add a little extra to the overall payment. I recommend adding whatever you can. Your goal is to become debt free as soon as possible. For this example we will use only the minimum payments.As you can see, there is no snowball strategy applied to your payments. As it stands you’ll be paying off your debt until September 2031 with about $9,000 in interest, yikes!
4. Next step is to click on the box next to Strategy and click on Snowball (Lowest Balance First). There are other options available too you can play around with. Here, we’ll apply the snowball method.
5. Now that you’ve applied the snowball payment method, let’s see what changes. You saved over $3,000 in interest! The amount of interest you would pay goes down to about $5,800 and your debt free date is April 2022. THAT’S 9 YEARS EARLIER THAN IF YOU DIDN’T DO THE SNOWBALL. You see how the snowball method can help you pay so much  less in interest while becoming debt free faster.
6. You probably want to see what the debt avalanche method looks like right? I got that covered below for you. As you can see you don’t really save that much in interest and honestly you lose the opportunities for the small wins to keep you motivated. This is why I prefer the debt snowball way. 
7. If you click on the second tab in the sheet you will find a “Debt Payment Schedule” for whatever method you choose. This is really great to print out or just refer to so you can see what the debt payment journey will look like.

Don’t Quit

My mom would always tell me, “Everything has it’s own time.” She’s right. Knowing how to get out of debt and putting it into action takes time, but you’ll get there. Stay focused and make it fun over the months or years on your journey to becoming debt free. Celebrate or do something to recognize each debt that is no longer a part of your life. Your financial independence is way too important for you to quit on living debt free.