Debt is a nasty four letter word most people would probably like to forget.
In fact, it is so gross that a few people want to destroy their debt as fast as possible.
These people take it as serious, or more serious, than their jobs.
I can definitely understand why people would want to destroy their debts, especially the high interest rate debts.
My wife and I have been there. In fact, my wife had over $80,000 of student loan debt when she graduated.
So, I thought I’d let you in on the secrets of how to destroy debt like it’s your job.
Get Serious About Your Debt
In order to treat anything like your job, you have to get serious about it. If you just want to kinda sorta get rid of your debt, it isn’t going to work.
You won’t annihilate your debt quickly and you might actually end up in more debt along the way.
So where do you start after you decide you’re serious about paying your debt off quickly?
Collect All Debt Paperwork Or Pull A Credit Report
The best way to get started is to know your debt like you know the back of your hand.
First, get all of the paperwork related to any debt you may want to destroy.
Whether your debt is a credit card, a mortgage or a student loan, you probably received or signed paperwork at some point in time for each debt.
Go dig it out now. I’ll wait.
Of course, there is a chance you don’t even know everyone you owe money to, which is a very scary thought.
Here’s what you need to do if that describes you. You pull your free annual credit report.
Head over to AnnualCreditReport.com, the free website that gives you one free credit report from each major credit bureau once per year as mandated by the federal government, and pull a credit report from each bureau.
Once you have the credit report you can take a look at all of your outstanding debts and then go find the paperwork or request paperwork from your lenders.
After you have all of the paperwork present, write down the terms of all of your loans. Important factors include the time period of the loan, interest rate, any fees or other monetary information.
Once you have this information you’re in a good position to get started in the epic battle of destroying your debt.
But Wait… Why Are You Destroying Debt In The First Place?
Before you get started on destroying your debt, you need to figure out why you got into the debt.
Why do you need to know this? Because if you don’t know why you got into debt, you could easily slip further into debt. Before you analyze which debt to pay off first, you really should take the time to get to the bottom of why you got into debt.
For some, figuring out why you ended up having a pile of debt up to your eyeballs may be an easy analysis. For instance, if your only debt consists of student loan debt from your college years, it might be straight forward.
However, if you maxed out six credit cards with random purchases here and there you might need to do a bit more digging. Once you’ve found the real reason why you’re in debt, you’re ready to start to destroying debt like it’s your job.
Take a few minutes to try figure out what debt you have and why you’ve gotten to the point you’re at today then move on to the next step.
Two Main Methods of Destroying Debt
There are two popular ways to tear your debt to pieces. The first method is called the Debt Snowball and the second method is called the Debt Avalanche.
The Debt Snowball
The Debt Snowball is often considered the best way to pay off debt from a psychological standpoint. So what is the Debt Snowball?
When you use the Debt Snowball method to destroy your debt, you need to arrange your loans by the balance owed on them from smallest balance to largest balance.
You’ll need to make the minimum payment on all of your debts. The key is what you do with all of the extra money you’ll be putting toward your debt to destroy it.
The point of the Debt Snowball is to take all of that extra money, referred to as your Snowball, and put it toward paying off the loan with the smallest balance.
This will result in you paying off your smallest piece of debt as fast as possible, putting a big win in your column.
After your first piece of debt is paid off, you’ll continue putting all of the extra money toward your next smallest loan balance along with the minimum payment from the debt you already paid off.
This will increase the size of your snowball and allow you to pay off your next loan faster than you otherwise would. To see your debt snowball in action, you can use this debt snowball calculator.
If you’d like to learn more about the Debt Snowball, I share everything you need to know about the Debt Snowball method of paying down debt here.
The Debt Avalanche
As you might have figured out, the Debt Snowball is not the most financially ideal way to pay off debt. By paying off the smallest balance first, you won’t be paying any attention to interest rates which determine how fast your debts grow.
The Debt Avalanche fixes this problem by using your extra payments to pay off the highest interest rate loan first.
The Debt Avalanche may take longer to pay off your first loan, but you’ll be minimizing the interest payments on your debt as you pay it off and you’ll be saving a bit of money in the process.
This method generally works out better for logical people who don’t need the emotional early wins of the Debt Snowball method.
Your Debt Avalanche will get larger as you pay off each loan. Simply take the minimum payments of each loan you pay off and roll it into your next highest interest rate debt payment, just like the Debt Snowball.
If you’d like to learn more about the Debt Avalanche, I share everything you need to know about the Debt Avalanche method of paying down debt here.
The Key To Debt Destruction
The key of debt destruction is actually paying off your debt.
It doesn’t matter whether you choose the Debt Snowball or the Debt Avalanche. Pick whichever works for you.
If neither of these methods work for you, make your own method. Just get that debt paid off.
Which debt payoff method do you prefer?