Sled Dog Skippy

The Voltron Project


Ryan came up with the name for this one!

This is all about paying off debt, people. Whoooooo boy. This is actually a combined strategy from my Dad, who is not a financial adviser, but is a really smart guy, and Suze Orman, who is a financial guru. Here’s what ya do:

1) Make a list of your debts, from lowest amount to highest
2) Make a list of your payments to each debt
3) PAY OFF THE LOWEST FIRST. Get ‘er done. We were the classic types who thought, well, we’ll pay like $10-$50 over the minimum payment on these other high-interest debts to get them payed off more quickly. That’s true, it works, but we are given a greater incentive to just knock one out of the park all together. You can scale back on your other debts and just pay the minimum payment while you are pushing all of your money towards the target debt.
4) Apply the monthly payment you WERE paying to that lowest debt to the next one on the list, in ADDITION to the minimum monthly payment you are making. Pay it off. Then apply the combined amounts to the NEXT debt on the list, and so on. By the time you get to that last, big debt, you will be pushing A LOT of money (The Voltron) at it and it will get payed off quickly.
5) When all of your debts are payed off, put the TOTAL amount you had budgeted towards your debts each month in SAVINGS.
6) LOOK AT ALL THAT FRICKIN’ MONEY IN SAVINGS YOU HAVE!

So for example: My first debt is a doctor bill for $85 and my next debt is a credit card with a balance of $XXXX and I make a monthly payment of $50 to the credit card. My first task to is pay that doctor bill off in one swoop-and financially I’m at a place I can do that. I make my minimum payment to the credit card, on time. That’s what I do this month. Next month, I take that $85 that I had budgeted and add it to the $50 minimum payment for a total of $135 to that credit card. And I keep paying that much until it’s paid off. Then because this is dream land and those are all the debts I have (ha!) I now put that $135 in savings each month until I can go on a fantastic vacation!

The great thing about this system is that you aren’t paying MORE than you already do now; you are just applying the combination of minimum payments. My advice though, is, on that first debt, if you have some wiggle room, pay OVER the minimum payment just to get that one over with–it will be that much more money you can apply to the next debt. It may seem scary at first to just pay the minimum payment while you are targeting another debt, but once that debt is on the hit list–it will get payed off FAST.

Suze Orman talked about how this lowest-highest system gives us incentive to keep going. We will see pretty immediate results and it feels good. For example, my student loan is the highest debt we have. It’s a lot. I’m not going to tell you how much because I was raised to not talk about salary or debt. I’m weird like that. Anyway, instead of paying it off in 30 years, and paying almost 4 TIMES more than the original capital loan, I will have this loan paid off 4 YEARS from now. By 2014, we will be totally debt free. Without any cuts to our lifestyle and while putting money in savings at the same time. BOOYAH!

Again, like The Compact, I’m not advocating a life of forced deprivation. I’m advocating that we all stop, think, and assess where the hell we are, how did we get here, and how to make it better.

And of course, there are some big factors here:
1) This will work if you keep your job and your budget
2) This will work if an emergency doesn’t happen and you wipe out your savings
3) This will work if you don’t continue to amass more debt

I do think that if something happened and you were financially screwed, that you could just float and pay those minimum payments and use your cash for living. Not the best strategy, but at that point, you are talking about survival and not going bankrupt.

If something positive and awesome happens and you get a new job or a raise, seriously consider applying MORE money to the list, to whichever target debt you are working on. Again, you will achieve debt freedom faster.

P.S. Okay, so I just learned that this strategy is also called “snowballing.” The Voltron sounds WAY awesomer, I know. Here is a cool calculator you can use to help (and you can choose the method we did, by lowest-highest balance, or by APR). And again, for some people, it may be better to pay those high APR debts first (less money in the long run). For us, we have a weird combination that would make either method the same amount of time and money paid. Thanks to Amanda C. for finding the calculator!

2 Responses to “The Voltron Project”

  1. tmc says:

    Great idea!
    This is the year that I figure all of my money shit out. I want a cool name for my plan!

  2. Skippy says:

    @TMC–hmmmm, is there a Tibetan deity that relates to household power (translation: finances)? Out of respect, you could name your plan after him/her.

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