Ok so in my 2011 aspirations I talked about wanting to pay off our debts so we only have the mortgage. Statistically we don’t have much debt, however we would like to only have a mortgage or just a mortgage and a small amount of school loans left by the time we think about having kids. So here is what we have to pay off.
2 Credit Cards with VERY small balances (from pre-marriage)
Car loan for our Pathfinder
Here is the plan, I will admit the first step makes me a little nervous.
- We have a decent amount in our savings account so we are going to stop our monthly transfers (completely for now that is the scary part) and use that money to pay off the credit card with the smallest amount owed.
- Once it is paid off we will use that money PLUS the amount we were paying towards the credit card and pay off the other one. Because the card balances are so low this should only take 3-4 months.
- Then we are going to use that amount PLUS the monthly payment amount for the second card and work on paying off the Pathfinder.
This is called the snowball method and its from David Ramsey, his theory is that even though the interest on some of the larger may cost you more the motivation of actually paying something off will motivate you to continue. I’m not sure if I believe this theory if someone is in a lot of debt, I would pay off the one with the highest interest rate first but in our situation it works just fine.
Here is where I deveate from his plan a little.
- After the car loan is paid off I will resume our regular amount of monthly savings and just use the amount of the car loan payments plus the two credit card payments and apply those to the student loans.
- As an extra step we are going to be going through the house and selling things. Half the money will go to savings the other half towards whatever bill we are working on.