Most people think it is impossible to be completely debt free without winning the lottery, and let’s face it, most of us are not winning the lottery this week. So how do you pay off debt and still have money for groceries?

There are two main philosophies for paying off debt. The first is called the Debt Snowball – this is the one that is supported by Dave Ramsey ( To do this, you pay the minimum payment on everything except the smallest loan amount. This is normally a credit card, but could be any type of loan. On the lowest one you put as much as possible towards that one loan, even if it is only $50 over what the amount due is. So if you have a loan of $500 and the minimum payment is $10 + your additional $50, you will have that debt paid off in 8 – 9 months depending on the interest rate. Once that debt is paid off, you start on the next lowest debt. This one works the same way; you are going to pay the minimum balance plus the amount you were paying on the previous loan. So if the minimum payment is $15 then you will be paying that $15 plus the $60 you were paying on the other card amounting to $75. If this started at $1,000 you will have already paid $135 by paying the minimum payments for the 9 months you were working on paying off the other card – now you are at $865, you will have this one paid off in about 12 – 13 months. That is 1 year and two of your debts are gone. You continue doing this until everything is paid off. The idea is to gain momentum and see results quickly.

The other philosophy, called a Debt Drilldown, is to take the card with the highest interest rate and pay it off first. You then do the same as above. Pay off the highest interest rate first then take the amount you were using to pay it and start tackling the next one. This one may not show the results as quickly, but it will mean you will pay less in interest overall.

The key to either of these methods is, that you can’t incur more debt while paying off the debt you already have. That would defeat the purpose and you could end up in a worse situation than before. For both of these methods to work, you need to first save up an emergency fund so you don’t have to rely on debt when the car breaks down or your child breaks their arm. We suggest saving a minimum of $500.00 to $1000.00 in your emergency fund. Ideally, you should have three to six months of normal expenses in your emergency fund.

Getting and staying out of debt is not easy but eventually it will give you the freedom to buy a new car or even a new house with cash because you can save money easier when you are not paying interest on debt. No, I am not debt free yet, but I am working on it.