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Step 5: Find Ways to Increase Your Income

A common complaint I hear is this: “I don’t make enough money!” My response: what are you going to do about that?

Sorry, but in today’s day and age, I just don’t accept that as an excuse. As long as you’re an able-bodied, healthy American, you can make money. Plus, there are almost unlimited opportunities to make extra side money!

RELATED: 40 Ways to Make Extra Money

You can also consider asking your boss for a raise. If you haven’t had an increase in income, make the move to ask for an increase! Or take a look at another company that might compensate you better.

Or try starting a low-overhead business. Try your hand at baking, life coaching, freelancing, or anything that fits your skills!

That was a lot…But remember this one thing

Yes, it was. But I want you to remember this: getting out of debt is all about behavior modification. In other words, if your mindset doesn’t change, then nothing will.

Therefore, getting out of debt is going to take A LOT of hard work. But if you learn how to say no to a few comforts for just a year or two, you’ll find yourself making major gains on your debt.

Now, are you ready to learn the best way to tackle your debt?

Step 6: Use the Debt Snowball Method to Get Out of Debt

Now that you have all that extra cash flow, what do you do with it? Now it’s time to start working the best method for getting out of debt: The Debt Snowball Method.

Basically, you order your debts by balance from smallest to largest. After that, you attack the smallest debt with everything you can muster and make minimum payments on everything else. Once you pay off the smallest debt, you then take the minimum payment from that debt and apply it to the next one. Then attack that next debt with everything you’ve got once again.

Rinse, wash, and repeat. Before you know it, you’re debt free!

To help you out, I’ve created a debt snowball worksheet. Enter your email address below to get your free worksheet today!

Why use the debt snowball method?

So, why use the debt snowball method? Why not use something like the debt avalanche method, which says to pay off the largest interest rates first? Wouldn’t that mathematically be more efficient?

Why, yes, it would be. At least to some extent. True, you could potentially pay off your debts quickly using either method. But you’ll find it harder to stay motivated with the avalanche method.

Research shows that people maintain their motivation as they start to see smaller debts disappear.

So, this really boils more to a behavior issue rather than a mathematical issue. Truthfully, most people care less about the math. We care more about results. If you don’t see results from your hard work, then it feels like you dig ditches and then fill them back up. In other words, it feels pointless.

Therefore, I recommend sticking to the debt snowball method. You can try something else if you want, but you won’t learn it from me.

Now that you’ve got your worksheet, here’s how you pay off debt using the debt snowball method.

1. Make sure you have a budget

You’ll hear me say this over and over again, but it’s essential for you to have a budget! You need to know where every dollar of your income goes.

This is especially true as you keep track of your debts, make necessary cuts, or add things you need.

Therefore, make sure your new budget reflects all your income and that you track every dollar.

2. List all of your debts from smallest to largest

Next, you need to list all of your debts from smallest to largest, regardless of the interest rate. Also, go ahead and list the minimum payment as well.

As an example, here’s what your debts might look like in order of smallest to largest:

  • Medical bill: $500 at 0% (min. payment $50 per month)
  • Credit card 1: $1,000 at 22.3% (min. payment $40 per month)
  • Credit card 2: $1,750 at 26.6% (min. payment $50 per month)
  • Student loan 1: $6,000 at 5.4% (min. payment $200 per month)
  • Student loan 2: $8,000 at 7.6% (min. payment $300 per month)
  • Car loan: $13,000 at 6.2% (min. payment $350 per month)

Do you see how we ordered them from smallest to largest, regardless of the interest rate? Why do you think that is?

It’s because as you start to see those smaller debts disappear, it fills you with motivation and momentum. That’s what the debt snowball method is about.

Trust me, it feels awfully good to knock out some of those smaller, pesky loans before tackling the big boys.


Now, there are a couple of exceptions to this rule. Here they are:

  • Overdue Taxes: These will always go first on your debt snowball. Otherwise, the IRS will come knocking and they won’t accept excuses.
  • Debts in Collections: You can let these sit a little while unless they’ve filed a lawsuit against you. Still, you should keep communicating with them and try to negotiate an acceptable payment plan. You might even be able to settle the debt for a lower amount.
  • If you have two debts with a similar balance, but significantly different interest rates: In this instance, pay off the debt with the higher interest rate before the other. For example, let’s say you have a student loan with a balance of $3,200 at 4.5% and a credit card with a balance of $3,500 at 22%. Go ahead and tackle the credit card before the student loan.

In these instances, you’ll need to re-order your debt snowball appropriately. If you don’t find yourself in any of the situations above, work your debt snowball as normal.

And no, having a 0% car loan, a 0% student loan, or any other 0% situation does NOT constitute an exception.

3. Attack the first debt with everything you’ve got! Make minimum payments on everything else.

In this step, you’ll attack your debts in order from smallest to largest. This is your chance to use any extra cash flow you may have obtained through budget cuts and side gigs! As you pay off your debts, you’ll take the minimum payments from those old debts and apply them to the next one.

Before you know it, you’ll be debt free!

Let’s revisit our example from above. Here are those debts once again:

  • Medical bill: $500 at 0% (min. payment $50 per month)
  • Credit card 1: $1,000 at 22.3% (min. payment $40 per month)
  • Credit card 2: $1,750 at 26.6% (min. payment $50 per month)
  • Student loan 1: $6,000 at 5.4% (min. payment $200 per month)
  • Student loan 2: $8,000 at 7.6% (min. payment $300 per month)
  • Car loan: $13,000 at 6.2% (min. payment $350 per month)

Now, let’s say through budget cuts and obtaining some side income that you have an extra $1,000 per month. Here’s how this would play out:

You’ll knock out the medical bill in half a month. You’ve already finished debt #1! You can now use that $50 minimum payment and apply it to the minimum payment for credit card #1 ($50 + $40 + $1,000).

Credit card #1 is also paid off within a month. In just less than two months, you’ve paid off two debts! Next month, you’ll apply the $1,090 AND the $50 minimum payment to credit card #2.

Credit card #2 takes a little bit longer, but you pay that one off within two months as well.

Now, I could go on and on, but I think you get the picture. You just keep adding the extra cash flow from each paid off debt to your snowball. After a while, you have a snow boulder!

4. Keep working your debt snowball until you’re debt free!

Finally, just keep going until you’re debt free! Do whatever it takes! Free up more income, take another side hustle, sell some stuff, or whatever you need to do.

As you pay off one debt after another, you’ll start to see the light at the end of the tunnel. Keep pushing! You’re almost there!


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Categories: Debt


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