Baby Step 2

Baby Step 2- Pay off your debt using the debt snowball method.

The Debt Snowball is paying the minimums on all of your debt accounts except one, paying that one off quickly and aggressively, when that debt is paid off you roll the entire amount you were paying onto the next debt.  So the amount you pay on the next debt is significantly larger so you pay it off quicker.

For example, if you have a $100 car payment and a $15 credit card payment you would pay the minimums on the car payments and lets say you can by $50 extra on the credit card. You put $65 down on the credit card each month until it is paid off then you would roll the $65 to the car payment once the credit card is paid off. So your new car payment would be $165 and you would continue that until the car is payed off quicker also.

There are a few different methods to the snowball. One is more mathematical, one emotional, one is a combination.
The first method is your first debt that you focus on is the one with the highest interest rate and then the next highest interest rate and so on until you pay off the debts.  This method is best if you want to save the most money seeing as you will pay less interest in the long run but it can be hard to stay focused with this method because it is hard to see your hard work paying off.
The second method is the pay off the debt with the lowest balance first and then the next lowest balance until you pay off the debts. The idea here is to use emotional "wins" to keep yourself motivated. This is the method that Dave Ramsey advocates.  It is not necessarily the best way mathematically but it helps most people stay on track and turns better in the long run because people actually get out of debt and not stay in it by failing.
The third method is a combination. Pick the debt you hate the most maybe its a credit card at a bank you no longer like, or a car, or those pesky student loans. Attack this one first and then follow on with the first method.  This method helps because you stay focused to get out of debt. You really want that one debt gone more than the others and then after that you have your huge emotional "win" because it feels so good to not have a debt that you hate so much you can continue with the plan more easily.

Any of these methods are good as long as you stay on track and stay focused. If you are a mathematical person go with the first, if you need emotional help to stay on track there is the second method, if there is just one debt that just really angers you every month when you see that bill get it gone!

Check out which method is best for you with this Caclulator.