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Have you ever been in (financial) debt? My opinion is that everyone has been in debt at some point or other in their life. Debt comes in many forms, including but not exclusive to, home loans, car loans, study loans, credit card debts, cash advancements, credit lines, easy payment schemes (scams more like), and money borrowed from friends and family.

Now, I’ll be the first to admit that I am indeed in debt and hating it. The reason is simple enough. When you’re in debt, you’re working for the person or organisation you owe money to. Think about it for a moment. When your paycheck comes in, the funds are almost immediately siphoned out from multiple points. The nett balance is all that you’ve earned for yourself.

Don’t fool yourself when you borrow money by thinking it is only until you get your next paycheck then you’ll pay it all back. By the time that comes along, you’ll find that your nett earnings is insufficient to balance your expenditure and you wind up borrowing more money (be it cash advancement or using your credit cards).

So if you’re like me, you’ve probably asked the question, “how then can I get out of debt fast?“. There are several suggestions but the one I prefer is the snowball method.

Step One: Stop borrowing money!
Recognise that you’re in trouble and stop digging yourself a deeper hole. Credit cards are your worse enemies. Freeze your credit line (literally put it in the freezer if you have to). These days I get alot of calls from credit card companies offering easy payment schemes and credit transfers that are touted to help ease my financial difficulties. Don’t be fooled. The worse possible thing you can do is to use a credit card to pay off other debts. They are legalised loan sharks with ripoff interest rates. Distance yourself from them.

Step Two: List your debts
Take a sheet of paper and list down all your debts along with the monthly minimum payments, interest rates and incurred interests in dollar value. There are several ways order the debts depending on your personality and choice.

If you’re a strong character (which is questionable considering you’re in debt to begin with), order your debts based on incurred interests in descending order (highest interest dollar value to lowest). By doing so, and applying the following steps, you can minimise the amount of interests incurred and thereby lower the total amount that you wind up paying.

If you feel that you’re not disciplined enough and may stray from the course, list your debts in ascending order, from smallest loan amount to highest. This method of listing will eliminate the smallest debt first, giving a sense of achievement and may help to encourage you to forge ahead with the plan.

A third method is to list debts based on the amount of worry or stress that it causes you. The reasoning behind this is that by eliminating the stress load, you free yourself to focus on the more important task of becoming debt free.

I suggest the second method, but ultimately, it is up to you how you wish to clear your debts. A combination of the three will work just as well, so long as you’re comfortable with it. But once you’ve decided, stick to it. Do not swap things around just because it gets too difficult.

Step Three: Commit to paying the minimum
Commit to paying the minimum monthly payment for ALL your debts. This is necessary to avoid incurring additional interests from late payments and penalties.

Step Four: Determine how much extra you can commit
After allocating the money required for the minimum monthly payments for all your debts, decide on how much extra you can commit to the cause. The larger the amount, the faster you’ll be able to gain your freedom.

Step Five: Pay the minimum plus extra
Pay the minimum monthly payments for all your debts. On top of that, apply the extra amount that you decided in step four to the loan at the top of you list from step two. In other words, focus loan at the top of your list and clear that first. Once you’ve done that, then you can move on to the next step and the next loan.

Step Six: Clearing the next loan
This next step is where the debt snowball method gets its name. Once you’ve cleared the top most loan, put your efforts to clearing the next loan. Continue paying the minimum amount for all your loans. Now take the amount that you have been paying for the cleared loan and add it to the minimum amount that you’re currently paying for the next loan. The amount that you’re for your target loan will snowball and increase with every debt that you clear.

And here’s the best part. Once you’ve finished paying off all your debts, you’re not only debt free but you’ll find that you’re a lot more disciplined and independant financially. The amounts that you’ve been paying off to loans will now become your nett savings! You’re now working for yourself and taking home a higher nett income.

Just remember, do not lower your guard. Continue to watch your finances and avoid incurring debts. At this stage you can melt out your frozen credit cards. But only use them when necessary and only as a convenience when you already have the funds to pay for them. Don’t use them if you can’t afford to pay it back with the money you have on hand (NOT what you think you’ll be earning next month!).