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A Simple Method for Paying Off Debt

A Simple Method for Paying Off Debt

Matt Viera
March 31, 2023

Good morning and Happy Friday!

Welcome to another edition of The Matt Viera Newsletter.

The newsletter with the goal to inspire you to live the life you actually want to live.

Thank you for your continued support.

Since starting this personal finance journey, I have discovered different ideas, techniques, methods, frameworks, etc., about money.

Just this past week, I learned about the following:

• Surprising facts about millionaires

• Different methods to pay off credit cards

• The difference between term and whole life insurance

• Reasons why you should have a Certified Financial Planner work with an Estate Planning Attorney and a CPA (trust me, you're not there yet unless you have a $500,000+ net worth)

In today's newsletter, I want to focus on a debt payoff method I recently learned about and believed everyone was aware of (except me).

I asked several people, "are you aware of this method to payoff debt?"

Except for one person (who explained it in an elementary manner), everyone I asked had no idea.

I was in good company.

Let's dive in:

A few years ago, I struggled with credit card debt on multiple credit cards.

I use credit cards for everyday purchases to acquire reward points (and pay off my balance on each card every month).

Note: I was able to buy two direct, round-trip tickets to Europe last summer using only these reward points.

But back then, I wasn't as diligent with paying off my credit card balances every month.

I felt compelled to sit down and look closely at my debt.

I remember sitting down, feeling committed to handling this business.

So, I listed out all of my debt.

Out of this menagerie of debt, credit cards were the worst.

I listed all of my credit card debt from smallest to largest balance and decided once and for all: this debt was targeted for termination.

I began by paying off the debt with the smallest balance.

Listing and paying off credit card debt from smallest to largest balance is a strategic method that apparently has a name.

The method is called The Debt Snowball Method.

This is how it works:

First, you want to take out a sheet of paper or open a spreadsheet (use whatever works for you and is easy to reference).

List all of your credit card debt from smallest balance to largest.

Next to each balance, list the minimum monthly payment for each credit card?

This is what your list should look like:

• CC#1 Balance: $675 | Minimum payment: $20

• CC#2 Balance: $1315 | Minimum payment: $25

• CC#3 Balance: $1625 | Minimum payment: $35

Next, figure out where you can find extra money within your budget?

Review the past 30-, 45-, 60-, or 90 days of your spending.

Figure out where (and how much) money you spent on what.

Restaurants, happy hours, shopping (did you need to buy those Manolo shoes)?

What you're trying to find is extra money you can use only to repay the credit card debt with the smallest balance.

Let's say you can safely use $150 per month only for debt.

Your next step is to attack the credit card debt with the smallest balance.

Add the extra money you found ($150) to the minimum payment of the card with the smallest balance.

$150 + $20 = $170.

You'll pay $170 toward the card with the smallest balance monthly until it's paid off.

Note: Remember to pay the minimum monthly payment on your remaining cards.

Once the smallest balance is paid off, attack the credit card with the next highest balance.

Add the $170 to the minimum balance of the next highest balance.

$170 + $25 = $195

Pay $195 monthly on that card until that balance is paid off.

Then move on to the next card.

The minimum monthly payment is $35.

Add that to the $195 ($230).

Pay $230 on that card until the balance is paid off.

And so on and so forth.

Once all of your credit cards are paid off, you still have $230 per month.

What can you do with this $230?

Keep the Snowball going.

Use it to attack another debt - your car or student loan.

Or use that money to build your emergency fund so you don't have to rely on credit cards in the future.

You can also use a similar but different method to pay off credit card debt known as the Debt Avalanche Method.

This method attacks credit card debt based on the highest to the lowest interest rate.

This will save you money in the long run, but it may take longer to terminate your credit card debt using this method.

Use whichever method you're comfortable with and fits within your unique financial situation to pay off your credit card debt.

With discipline and consistency, you can finally pay off credit card debt once and for all.

Remember: you deserve to live a life free from debt.

Interesting reads:

With the opening of John Wick: Chapter 4, you have to ask yourself: Why do all action hero's first name start with the letter "J"?

"In 2022, the business pulled in about $850,000. This year, it’s on track to clear $1 million."

Thanks for reading!

Please feel free to reply to this email with suggestions, questions, or comments.

If you have a question about personal finance or money, in general, send me an email and ask. I'll discuss the answer in a future issue of this newsletter.