Forget the Snowball and the Avalanche – Meet the Debt Meltdown

Melt down those balances….

The Debt Snowball is famous in personal finance circles – probably primarily for being Dave Ramsey's preferred way of getting people out of debt.  For those who like to play games with numbers, the Debt Avalanche is preferred.  But allow me to introduce the newest contender for the way to pay down your debt – the Debt Meltdown.

First a definition of terms for those who are new.  The Debt Snowball means paying off all of your debts, from smallest to largest, and it works because it allows you to get some quick wins and some momentum.  You make minimum payments on everything and throw and extra money at the smallest one.  As soon as that smallest debt is paid off, you take the extra money, the minimum on that smallest debt that is now paid off, plus the minimum payment on the next to the smallest one and roll all of that money into one payment on the second smallest of your original debts. 

The Debt Avalanche is for those who point out that, all things being equal, you should actually pay less in total dollars if you start with the debt that has the highest interest rate and pay that off first.  If you are a spreadsheet/math/super disciplined person, then this may be the approach for you.  It's definitely the correct approach mathematically, but if you are going to get discouraged and quit while paying off the credit card from he!!, then don't bother.  In either scenario you will pay less in interest than if you just give up and ignore the problem.

II'd like to propose a third way – in which you pick either approach outlined above and add a separate step.  If you are anything like me, as you create a list of all your debts, the minimum balances, the interest rate, and the total due, your system is going to go bananas.  For many people, this could cause them to quit or to push the emotions down and keep going.  I'm going to encourage you to view this as an opportunity to do a bit of research.

Most of what messes us up the most about money is all the nasty limiting beliefs and toxic money scripts we have.  In order to address and get rid of those beliefs (important if we want to stop them from getting in our way), we have to find a way to bring them from the subconscious mind where they have been like apps running in the background up to the conscious mind where we can look at them and deal with them.  As you take inventory of all the debts you have and how much you owe, your thoughts and feelings will start to go wild.

You may hear yourself thinking, “ugh, this is a disaster.  I'll never pay off these debts.  I'm just bad with money.”  You may feel anxiety.  This is actually really valuable information, as this mental chatter is harder to get rid of than the debt itself.  Take the opportunity to capture all of that.

For the thoughts, sometimes just bringing awareness to them is enough to dissolve them.  When my husband and I got married, I just completely abdicated the bill paying to him.  The problem was that he had a very different standard of what was ok.  My standard was to get the bills paid before the due date – his was to get the bill paid before they turn off your lights.  Yikes.

I had been paying my own bills for years.  Why, when we got married, did I suddenly decide I was done with money?  I had a subconscious belief that money is the man's department.  As I remember it (which may not be actually how it happened), my dad earned the money, managed the budget, and paid the bills. 

Now consciously I did not believe this.  I was a career woman.  I had no interest in having kids, being a stay at home mom, babysitting, or otherwise being a traditional wife.  But deep in my brain, the belief lurked, completely without me knowing about it.

For other beliefs, you may need to go from negative, “I'm bad at money” to more neutral, “I can learn any skill.  I can learn about handling money,” to positive, “I am great with handling my finances”.  But move the needle over time so you can improve what you tell yourself about yourself.

So why debt meltdown? Well, if being honest about your debt leads to a meltdown, best to take advantage of all the thoughts and feelings that are going to come up during that meltdown.  Plus, I believe if you can combine internal finance with external finance, you'll get better results faster, melting down that mountain of debt and reducing the chances of it coming back.