Nervous

How to pay off debt with the Momentum Method

Debt is overwhelming. Whether you owe $200 or $200,000, knowing where to start can be the hardest part. The good news is I’ve got a plan for you.

I’ve noticed that people tend to care less about the full amount of debt they owe and more about how much they are obligated to pay each month to maintain those debts. For example, you could owe $200,000 and have to pay $1,690 a month in minimum payments. It’s likely the $1,690 a month is what you are more anxious about. Paying off debt obviously helps your net worth, but it also clears up cash which lessens financial stress. And when you clear up cash you can use it for the present and future instead of the past.

So what’s the plan to clear up cash? You need to attack one debt with as much money as you can spare. “Slapping” all your debts with a little more more than the minimum won’t get you anywhere. When you attack one debt and pay it off you can use the newly freed-up cash to pay down the next debt.

So what debt do you attack first? Most people will choose the debt with the highest interest rate, but trust me, that won’t work. I know it’s counterintuitive, but you need to ignore interest rates. Your goal is to get out of debt, and focusing on the balance of each debt is the best way to do it. Line your debts up from the smallest balance to the largest balance. Pay the minimum balance on all of your debts except for the one with the smallest balance. Throw everything you can at that debt. Let’s say your debt with the smallest balance is a $300 medical bill with a $45 minimum monthly payment. Depending on how much money you can squeeze out of your budget, you could potentially pay this bill off in a month or two. Not only will this cleared up $300 of debt but it will also clear up $45 a month. Another bonus? Paying off a debt is a great feeling and it will give you the momentum to move toward paying off your debt with the next highest balance. That’s why this method is called the momentum method, it gives you the forward motion that other methods can’t provide. 

The momentum method is the only way to pay off debt without burning out. Every time you pay off a debt it’s a victory that can carry you until you pay off your next debt.

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