You need an emergency fund large enough to cover three to six months of expenses, enabling you to manage for up to half a year without an income. The next step is boosting your emergency fund to give yourself a cushion against life-disrupting problems like a job loss or medical bills. When the second debt is paid off, apply the payment amounts from the first two debts, plus any other money you can find, to the third debt on your list, and so on.Įach time you pay off a debt, you increase the amount you can pay on the next one-your payments continue to snowball until your debts are paid off. Make the minimum payments to stay current on the other debts on the list.Īfter the smallest debt is paid, apply the payment you had been making on it, plus any additional money you have, toward paying off the next smallest debt. Exclude only your mortgage, which will be addressed in another step.Ģ) Each month, apply every extra dollar you have after basic expenses toward paying the smallest debt until it’s paid off. There are two steps:ġ) List your debts in order, from the one with the smallest balance to largest. The debt snowball method is the way to pay off debt. You need to get rid of debt to get control of your income and put it to work for you. When you get $1,000, stash it where it’s accessible in an emergency but not so easy to grab that you’ll be tempted to spend it for non-emergencies (for instance, by keeping it in your sock drawer). Most people can find the money in less than a month, but if you can’t, sell more or take on an extra job. Do whatever you can to round up $1,000: cut your spending, work extra hours, or sell something (by having a yard sale, for example).

The money makeover