You load 16, tons, and what do you get?
Another day older and deeper in debt.
St. Peter don’t you call me, ‘cause I can’t go.
I owe my soul to the company store.
Lyrics “Sixteen Tons” –Merle Travis, 1946
Welcome to the United States, where debt is king. Debt was an issue in 1946 when Merle Travis wrote Sixteen Tons and it has grown exponentially since then.
Without question, we are a debt-driven society. We’ll borrow money for almost anything. Living within your means seems to be an outdated concept relegated to the dusty annals of a bygone era. The Experian credit reporting agency says as of 2020, Americans owe $14.88 trillion in consumer debt. That’s an all-time high. A recent study by The PEW Charitable Trusts found that 80% of Americans have some kind of debt; that’s 8 out of every 10 people you pass. And according to business owners across the country, most people no longer ask the price of a purchase, but rather, “How much will the monthly payment be?”
For those who want to get out of debt, the process is becoming more difficult with 84-month (7-year) car loans, the new 40-year home mortgage, and credit cards with interest rates as high as 36%. By the time it’s paid off—if it’s paid off—you’ll pay more in interest than the purchases themselves.
For example, let’s say you owe $1,225 on a credit card with a 22% interest rate and a minimum payment of $28. If you only make the minimum payment and don’t charge anything else, you’ll end up paying $1271.69 in interest—more than the cost of what you bought.
So, how can you get out of debt? It’s time to dust off an old debt reduction strategy called the Debt Snowball Method. It’s a simple, common-sense approach to paying off what you owe, paying off debt in order from the smallest to the largest.
You continue making minimum payments on all your debts, but apply any extra money to the smallest debt first. When the smallest debt is paid in full, you roll the money you were paying on that debt into the payment you are making on the next smallest balance. As each debt is paid off, the freed-up amount for that creditor is applied to the next smallest debt until you are out of debt.
This is simple but requires discipline and commitment. Along the way, there will be challenges and you’ll be tempted to stray from the plan. That’s why you start with the smallest balance first rather than with the highest interest rate. Seeing an entire debt wiped out and a balance go to zero will keep you motivated.
Paying off large amounts of debt is like eating an elephant. If you think about eating the entire elephant at one time, you’ll be overwhelmed and discouraged and most likely give up. But when you eat an elephant one bite at a time, it’s manageable. Eventually, your nose will be tickled by the hairs on the tip of the elephant’s tail as the last bite goes down and you’ll be…DEBT-FREE!