If you’ve been with me from Day 1, and stuck with it over the past week and a half, you should now be prepared to fight your war on debt. Sun Tzu, the 6th century Chinese military strategist, Taoist philosopher, and general, once said in his famous book “The Art of War”:

“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.” -Sun Tzu

What does that mean to you? If you’ve prepared properly for your war against debt by reading the information that I’ve put out there so far, and putting it into action, you’ve already won. If you haven’t, you have already been defeated.

Another quote from the book, is this:

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” -Sun Tzu

How does this one translate? Every war consists of a certain number of battles. Your war on debt will be no different. If you know what your “Why” is, and trust that your “Why” is strong enough to get you through each battle (Each debt that you need to knock off), you will win the battle, and thus the war. If not, you will succumb to the enemy (Debt), time and time again and the war will be lost.

Ok, that was pretty deep. Now, let’s move on to explain Baby Step #2: Pay off all debt using the debt snowball method. As I mentioned 2 blogs ago, Baby Step #2 is the most complex, long, and frustrating of all of the steps, but also the most rewarding. this one will really try your patience, so prepare, stick with it, and win the war!

What is the Debt Snowball Method?

It’really remarkably simple. That’s the beauty of this system. It’s a series of steps that are easy to understand and follow. Just like any large scale life change, it’s hard to stick with it. But, YOU CAN DO IT!! How do I know that? Why, because I did it myself. Remember that list of Baby Steps? My family is on #7. At no point in our 5 year, 9 month journey where we paid off $136,086.65, did we make more than $80,000 per year combined. In fact, at the beginning, it was far less than that at around $50,000 a year. Trust me, YOU CAN DO IT! During that time, we also saved $10,000 into our emergency fund, I lost my job while my wife was 6 months pregnant, and we paid around $5,000 in hospital bills for our daughter’s birth. YOU. CAN. DO. IT!

I’m sorry that I got off on that tangent, but I want to make sure that you know that no matter what life throws at you during this process, if you’re committed, and resilient, you can win the war.

Ok, so the debt snowball. As I said above, it’s remarkably simple. You list your debts from lowest balance to highest balance and pay them off in order. As you go, take the payment that you were paying on each debt that you pay off, and apply it to the next largest debt along with that debt’s normal payment. As you get further down the list, the amount that you’re able to pay toward the next biggest debt gets larger and larger. Hence the “Snowball. That’s it. Don’t make it any more complicated than that.

Do not take interest rate into account. I know that may sound counter intuitive to some of you, but trust me. In the long run it won’t matter as long as you’re working the snowball correctly. Below is a list of debts that my wife and I held. I don’t have the all of the monthly payment figures on there, but I made them up based on my memory so it’s pretty close.

Item			Amount		Monthly Payment
Best Buy Card			$650.00		$30.00
JB Robinson/Wedding Rings			$3,000.00		$120.00
Bank of America Card			$8,000.00		$60.00
Jessi Student Loans			$11,000.00		$120.00
Focus (Car)			$11,909.65		$194.00
Credit Line			$17,597.00		$200.00
Mercury (Car)			$17,780.00		$309.24
House			$66,150.00		$824.00
TOTAL			$136,086.65		$1,857.24

So, using our example, this is how it works:

Take whatever amount of extra money that you found by eliminating unnecessary items from your budget, adjusting your tax withholding, stopping contributions to your retirement, selling all the extra stuff in your house that you don’t need/use, and getting that extra job to add that to the monthly payment for the first debt on the list. I don’t remember what ours was, so I’ll just use $1,000 as an example here.

1. Take that $1,000 and add it to the monthly payment from the Best Buy card. You now have $1,030 to put toward your debt. That knocks out Best buy in the first month and $380 from the JB Robinson Card.
2. You then add $1,030 to the $120 per month that you’re putting on the JB Robinson Card and pay $1,150 toward that until it’s paid off.
3. After that’s paid off, add the $1,150 that you were paying toward JB Robinson and add it to the minimum payment of the Bank of America Card. Now you’re putting $1,210 per month toward paying that off.
4. Keep following that formula and win those battles!

Get it? Got it? Good! 

Come back tomorrow, when we’ll dive into some more information about the snowball and how to conquer it if (when) you hit some bumps in the road.

 

Do you have questions about your particular case? Comment below. I’ll be glad to offer my advice!

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