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Years ago, a good friend of mine and I were discussing finances. I was a newly single mom, and was feeling overwhelmed by the prospect of trying to pay my bills. My friend told me how she handled those bills that are payments (not regular monthly bills, but things like furniture payments, car fixits, medical bills, car payments, etc.). By organizing and paying them as follows, you will be surprised how quickly they can be paid off!
First of all, figure out your budget. How much is each payment? List the debts in order from smallest to largest. Make payments to each, EVERY month. List the following information:
Do this for each bill.
By paying the bills in this way, when one is paid off, you can make progress very quickly on the list of bills, without changing your budget/spending. It's very easy when a bill is paid off, to simply incorporate that money into the spending. By exercising discipline in paying the bills off in this way, when you get all the bills paid off, you can now put the money into savings, which was previously spent on these "one-time bills!
I hope this system of bill paying helps others who are struggling with finances! I have found that most people are good about working with a person if they receive regular payments. This way, everyone gets a little something, and the top bill on the list gets the most. By the time you get to the bottom of the list, you can make a hefty payment instead of the $25 (or whatever) you previously were able to make! Good luck!
Source: Another single mom struggling to make ends meet!
By Pam T from Storm Lake, IA
This is a great idea, but it only works if you stop spending money on things you don't need and running up other bills that end up at the bottom of the list. Thanks for the tip, hope people take your advice.
I also used this method 20 years ago to get out of debt. I still use a credit card but I pay the balance in full each month so I don't incur a finance charge. One additional item to consider is putting the bills in order by the size of the interest rate. If you start paying off the highest interest rate bills first you will be saving more money in the long run.
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These tips are for getting out of debt. I came across the snowball tip when listening to Dave Ramsey, so I can't take full credit. First of all, create a budget that allows for a reasonable standard of living or else you won't stick to it. Then, focus on paying off the debt with the smallest balance by paying every last extra cent you have toward it. Once that's paid off, focus on the next one with the lowest balance. You'll be able to apply the amount you were paying on the first bill in addition to what you normally were paying. Keep this up until everything (maybe even your house) is paid in full and don't accrue any more debt in the process.
By Michelle from Lompoc, CA
It might be a good idea to pay off the debt with the highest interest rate first, rather than the one with the smallest balance. Mathematically, this saves you money in the long run.
Dollface, just wanted to say a big-time thanks for getting the word out about Dave Ramsey and deep-sixing debt. Good luck with your own dough. Way to go, baby! (01/09/2007)
The deal with paying off the smallest first with Dave Ramsey's method is the emotional satisfaction you get by paying off the smallest debt first. Then, you gain a foothold and you have one less monkey on your back a lot faster than if you go for the interest rates. (12/06/2008)