I started real life out with $45,000 in debt and now, I’m down to less than half of that in just a little over a year. How did I do it? It’s called actively attacking debt and employing a debt repayment strategy commonly known as the debt-snowball.

According to Wikipedia:

The debt-snowball method of debt repayment is a form of debt management that is most often applied to repaying revolving credit — such as credit cards. Under the method, extra cash is dedicated to paying debts with the smallest amount owed.

Methodology

1. Write down all the debt you owe, be it revolving credit or personal loans
2. Don’t forget to write down the balance owed and effective annual interest rate (EAR)
3. Always pay the minimum amounts due for all debts
4. Set a maximum amount of cash you can devote to service debt every month
5. After paying all the minimum amounts, determine how much money is left over
6. Use the extra money to pay off the account with the lowest balance account first
7. Another method is to pay off the account with the highest interest (EAR) first but for some people, seeing accounts being paid off is more motivating (technically, you save more money paying off high interest accounts first)
8. Once the account has been completely paid off, use the extra money used to pay that account and its old minimum payment to pay off the next highest balance or highest interest account
9. Rinse and repeat until all debts have been eliminated

In my case for example, I had the following debt with the following interest rates:

• TD Student Line of Credit – ($8,000) @ 8.00% variable
• OSAP Student Loan – ($12,000) @ 6.50% variable
• TD Secured Auto Loan – ($16,000) @5.65% fixed
• Citi Mastercard - ($9,000) @ 18.50% fixed

Now I chose to attack the highest interest account first so I paid all the minimum amounts due and funneled all the extra money to paying off the Mastercard. The Mastercard account has now been completely paid off and theoretically, all the extra money + the Mastercard minimum payment should now be applied against the TD Student Line of Credit at 8.00%.  Rinse and repeat until all debts have been paid off. This method is very simple and extremely motivating as you can keep track of closing each account as a milestone towards a debt-free life.