Pay Down Debt

A big challenge with any financial goal is staying on track. If we begin with a good intention of paying off loans faster but see no real progress after a month or two, it’s easy to get disheartened and quit. That’s why you need a plan. Here’s the one our team recommends:

The Snowball Strategy
Let’s say you have four bills you have to pay every month:

BILL	LOAN AMOUNT	MIN MONTHLY PAYMENT	AMT YOU PAY MONTHLY
Repair Bill	$525	$55	$80
Car Loan	$7,000	$135	$150
Home Equity Loan	$10,000	$96	$170
Credit Card	$2,700	$67	$100

You’ve budgeted $500 per month for loan payments and you’re spending a little more than the minimum on each bill every month. The problem is: The balances aren’t going down by much month over month and you’re left feeling they’ll never be paid off.

Let’s look at it differently: What if you rank each loan by the amount you owe, smallest to largest. Then make the minimum payment on every loan except the smallest. Apply the extra money you have left to the smallest loan:

BILL	LOAN AMOUNT	MIN MONTHLY PAYMENT	AMT YOU PAY MONTHLY
Repair Bill	$525	$55	$202
Car Loan	$7,000	$135	$135
Home Equity Loan	$10,000	$96	$96
Credit Card	$2,700	$67	$67

With this simple change, you’ll have the smallest bill paid off in less than three months! (Yay!) You’re making progress. Now do the same with the next smallest bill: the credit card. But with one loan paid, now you have even more money to apply to the credit card debt and it gets paid off much earlier as well.

BILL	LOAN AMOUNT	MIN MONTHLY PAYMENT	AMT YOU PAY MONTHLY
Car Loan	$7,000	$135	$135
Home Equity Loan	$10,000	$96	$96
Credit Card	$2,700	$67	$269

PAY DOWN DEBT

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