Game Plan to reduce debt.

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

Student Loans

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.  

The goal is to be down to only the mortgage by the end of 2012.
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6 comments on “Game Plan to reduce debt.

  1. This is a widely tested, used and recommended method. It is entirely doable. A little extra challenge in this area is if you have a faith that is a part of your daily life be sure to be giving financially to support whatever church or organization is “feeding” your faith. Even though it seems like it would be taking away from your ability to pay your bills, it does not. You will be personally blessed for giving back. I can speak from experience!

  2. Yep, our Church introduced this concept in 2009 and since then I have been able to pay off my student loans early as well as a hospital bill (early) and two other debts. We want all of our debts paid off so 4 years down the line we will be able to up and move to Wisconsin no problem. We also put aside a set amount to help out our church and K love as these two places feed our faith.

  3. I think your action plan is AWESOME!! We got into debt several years ago-got out and then with a change in jobs for my husband, then a loss of his job right before Christmas-we are back into it…and I vow we will get out…So I look forward to watching you progress. It will be a great feeling! Good luck to you! from a fellow 2011 Dream Team Blogger.

  4. We are currently working our way outta debt and have ONE MORE credit card to go…we paid off about 12,000 dollars in debt from March,2010 to Dec.2010 & hope to be DEBT FREE, except for my 2008 Chevy Cobalt, by the end of March,2011 !! You’re doing it the right way…congratulations !

  5. Wow, that sounds like an interesting plan. From the sound of it, you put a lot of thought into this so I’m sure you will succeed in your plan, barring any unexpected emergencies *knocks on wood*.

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