Best Way to Pay Off Debt Fast (That Actually Works)
TLDRIn this engaging video, George Camel introduces the debt snowball method as the most effective way to pay off debt, with people typically becoming debt-free within 18 to 24 months. The method involves listing debts from smallest to largest, regardless of interest rates, and aggressively paying off the smallest debts first to build momentum and motivation. Camel dismisses debt consolidation and emphasizes the importance of behavior over math in debt repayment. He shares personal success with the method, having paid off $40,000 in consumer debt. The video also addresses common questions, such as prioritizing debts with the same interest rate, staying motivated, using emergency funds, leveraging savings, and the role of tithing for Christians in debt. Camel encourages viewers to use a debt snowball calculator for a personalized debt-free timeline and to celebrate their financial progress.
Takeaways
- 📉 The debt snowball method is a proven strategy for paying off debt, which involves paying off debts from smallest to largest balance regardless of interest rate.
- ⏱️ People using the debt snowball method are typically debt-free in 18 to 24 months, providing a clear timeline for financial freedom.
- 💡 Unlike debt consolidation, the debt snowball method does not involve taking on more debt to pay off existing debts, which can lead to a cycle of debt.
- 🚫 The debt avalanche method, which focuses on paying off debts with the highest interest rate first, is not recommended here as it may not provide the motivation and quick wins necessary for staying on track.
- 📋 To start the debt snowball method, list your debts from smallest to largest, make minimum payments on all but the smallest, and apply extra money to the smallest debt until it's paid off.
- 🎯 Once the smallest debt is paid off, the money that was going towards it is then used to pay off the next smallest debt, building momentum as you progress.
- 🤑 Quick wins from paying off smaller debts quickly can provide motivation and hope, making it more likely for individuals to stick to the plan and become debt-free faster.
- 👫 Surrounding yourself with a supportive community or joining financial classes can help keep you motivated and accountable during your debt repayment journey.
- 🏠 If an emergency arises, it's advised to temporarily pause the debt snowball method and rebuild your emergency fund before resuming.
- 💰 If you have non-retirement savings, it's suggested to use those funds to accelerate debt repayment, but do not liquidate retirement funds due to penalties and tax implications.
- 🙏 For those who are religious and consider tithing part of their financial plan, it's recommended to continue tithing a portion of your income while also working towards debt repayment.
- 🎉 Celebrating small wins and focusing on personal progress rather than comparing yourself to others can help maintain a positive mindset throughout the debt repayment process.
Q & A
What is the debt snowball method?
-The debt snowball method is a debt repayment strategy where you list your debts from smallest to largest balance and pay them off in that order, regardless of the interest rate. Once the smallest debt is paid off, you roll the payment amount of that debt to the next smallest debt, and so on, building momentum towards becoming debt-free.
Why is the debt snowball method considered better for motivation than the debt avalanche method?
-The debt snowball method is considered better for motivation because it provides quicker wins by paying off smaller debts first, which can help maintain motivation and a sense of progress. The debt avalanche method focuses on paying off debts with the highest interest rate first, which might take longer to see significant progress and can be demotivating.
How long does it typically take to become debt-free using the debt snowball method?
-On average, people using the debt snowball method become debt-free in 18 to 24 months. However, this can vary depending on the individual's financial situation and the amount of debt.
What should you do if you have two debts with the same interest rate?
-If you have two debts with the same interest rate, you should pay off the debt with the smallest balance first, as the debt snowball method prioritizes the balance size over the interest rate.
How can you stay motivated during the debt snowball process?
-To stay motivated, create a visual reminder of your debt payoff journey, revisit your 'why' for getting out of debt, find a supportive community or accountability partner, and celebrate small wins along the way without constantly comparing your progress to others.
Should you pause the debt snowball method if you have to use your emergency fund?
-Yes, if you need to use your emergency fund for an unexpected expense, you should temporarily pause the debt snowball method. Continue making minimum payments on your debts while you rebuild your emergency fund to at least $1,000, and then resume the snowball method.
What should you do if you have non-retirement money saved up while using the debt snowball method?
-If you have non-retirement money saved up, such as in a savings account or invested in stocks, you should consider selling or liquidating those assets and applying the funds towards your debt. However, you should maintain a $1,000 starter emergency fund.
Is it advisable to tithe while getting out of debt if you are a Christian?
-If you are a person of faith, it is generally advised to continue tithing a portion of your income, typically 10%, as a first step in your budgeting process. This is separate from the debt repayment strategy and is considered a personal commitment to generosity and faith.
What is the significance of having a fully funded emergency fund after becoming debt-free?
-Having a fully funded emergency fund, typically three to six months of expenses, after becoming debt-free provides a financial safety net for unexpected expenses. It helps prevent falling back into debt and allows for greater financial stability and peace of mind.
How does the 'Every Dollar' budgeting app assist with the debt snowball method?
-The 'Every Dollar' budgeting app simplifies the debt snowball method by automatically organizing your debts from smallest to largest balance when you enter them, reducing the mental effort required to manage the debt repayment process.
What is the recommended next step after becoming debt-free using the debt snowball method?
-After becoming debt-free, the recommended next step is to save up an emergency fund of three to six months of expenses (baby step three in the Ramsey baby steps), which provides a financial cushion for unforeseen circumstances and helps maintain financial stability.
Outlines
💸 Introduction to the Debt Snowball Method
The video introduces the Debt Snowball method as the best way to pay off debt, with people becoming debt-free in an average of 18 to 24 months. The host, George Camel, humorously compares the effectiveness of the method to the unreliability of McDonald's ice cream machine. He emphasizes that the method is favored over debt consolidation and the Debt Avalanche method, which focuses on paying off debts with the highest interest rates first. The Debt Snowball method prioritizes the smallest debts regardless of interest rates, aiming to build motivation through quick wins.
📊 How the Debt Snowball Method Works
The Debt Snowball method is explained in a step-by-step process. It involves listing all debts from smallest to largest, making minimum payments on all debts except the smallest, and applying any extra funds to the smallest debt until it's paid off. Once the smallest debt is cleared, the process is repeated with the next smallest debt, building momentum as each debt is paid off. The video also addresses common questions and concerns about the method, such as what to do when debts have the same interest rate, staying motivated, and whether to pause the snowball in case of an emergency.
🚀 Personal Testimonial and Additional Tips
George Camel shares his personal experience of using the Debt Snowball method to pay off $40,000 in consumer debt in 18 months. He offers advice on staying motivated, such as creating visual reminders of financial goals, revisiting the reasons for getting out of debt, finding a supportive community, and celebrating small wins. The video also covers whether to use an emergency fund, how to proceed if non-retirement funds are available, and the approach to tithing for Christians while paying off debt. Camel encourages viewers to start their debt-free journey and provides a debt snowball calculator link for viewers to estimate their debt-free date.
Mindmap
Keywords
💡Debt snowball method
💡Debt free
💡Minimum payments
💡Interest rate
💡Behavioral finance
💡Quick wins
💡Emergency fund
💡Liquidate
💡Tithe
💡Budgeting app
💡Ramsey baby steps
Highlights
The debt snowball method is introduced as the best way to pay off debt, with people becoming debt-free in an average of 18 to 24 months.
The method is compared to the ice cream machine at McDonald's, which is often broken, to emphasize that the debt snowball method actually works.
Debt consolidation is criticized as a method to pay off debt, as it involves taking on more debt to pay off existing debts.
The debt snowball method focuses on paying off debts from smallest to largest balance, regardless of the interest rate, to maintain motivation.
The Harvard Business Review is cited as supporting the effectiveness of the debt snowball method.
A step-by-step guide is provided for implementing the debt snowball method, emphasizing quick wins and momentum.
The importance of behavior change in addition to mathematical calculations is stressed for effective debt repayment.
The speaker shares a personal testimony of paying off $40,000 in consumer debt using the debt snowball method.
Using a budgeting app like Every Dollar can simplify the debt snowball method by automatically ordering debts from smallest to largest.
Strategies for staying motivated during the debt repayment process are discussed, including creating a visual reminder and revisiting personal reasons for getting out of debt.
The advice is given to pause the debt snowball if an emergency fund needs to be used, and to rebuild the fund as quickly as possible.
It is suggested to use non-retirement savings to accelerate debt repayment, while keeping a starter emergency fund intact.
The question of tithing while getting out of debt is addressed, with a recommendation to continue giving as a part of one's faith, even when in debt.
A debt snowball calculator is mentioned as a tool to help individuals see how quickly they can become debt-free.
The video concludes with an encouragement to start the debt snowball method, emphasizing that it may be challenging but will be worth it in the end.
Transcripts
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