How to Get Rid of Debt Without Debt Consolidation

You don't have to consolidate your debt to pay it off. In fact, debt consolidation can have dangerous consequences. If you consolidate your consumer debt into a home loan and you can't make your payments, you could lose your house. Instead, by using a debt "snow ball" approach, you can jump-start your debt payoff plan and experience success sooner rather than later. And it won't take that long--according to personal finance guru Dave Ramsey, most people can pay off consumer debt (that is, debt not secured by a mortgage or other asset) in about two years.

Instructions

Identify Your Income and Expenses

1

Add up your after-tax income for the last three months from your pay stubs.

2

Add up all the expenses from your checking account statements and compare the sum with the sum from your pay stubs.

3

Ensure that your expenses are no greater than your income over the three-month period. If they are greater, you must add the difference to the amount you determine below in order to make meaningful progress on your debts.

4

Identify spending cuts equal to at least $100 per month or more. Bear in mind that these spending cuts are temporary and you can reinstate them if you want after your debts are paid off.

The Debt Snowball

5

List your outstanding debts, excluding your mortgage, on a piece of ruled paper from smallest debt to largest. Next to each debt, list the minimum payment required for each.

6




Make minimum payments on all but the smallest debt.

Add the extra amount you created through spending cuts to the minimum payment of the smallest debt on your list, and pay that amount towards the debt each month until it is completely paid off. Make minimum payments only on the other debts.

7

Apply both the extra amount you created through spending cuts and the minimum payment of the smallest debt to the minimum payment of the next debt on your list until it is also paid off.

8




Experience the freedom of paying off your last debt.

Work your way through each debt on your list in this same manner, adding its former minimum payment to your growing payment "snowball," until your last non-mortgage debt is paid off.

9

Consider using your freed-up cash to create an emergency fund and boost your retirement savings.