When you finally reach the last payment on a loan, credit card, or other monthly financial obligation, cheers of joy will abound but what will you do with that extra cash? It may seem like a good idea to splurge a little since you have been so dedicated to closing out a debt but there is a better plan for that money. Redirecting the cash you save on a monthly payment is the best way to help get you out of debt faster than you originally planned.

What Does It Mean to Redirect?
When you pay off a debt, the money you were paying each month toward that debt should now go another debt expense. For instance, you pay off a loan note of $200 a month. Take that $200 and add it to the payment of your next highest debt – a credit card bill, student loan payment, etc.

Starting the Snowball
Gather your personal finances and do the math. Are there any debts you are close to paying off right now? For example, if you have a $400 balance on a credit card, tack that $200 payment on to your regularly monthly payment. In less than two months, you have tackled yet another debt.

Growing the Snowball
Now that you have paid off two debts, take the $200 and add to it the amount you paid on your recently paid off credit card (we’ll say $50). Tack the extra $250 on to your next debt until it is paid in full. Continue the process and you will keep eliminating debts in a much faster period of time as your debt decrease and your extra payments increase.

What To Pay First?
There is some debate about how individuals should manage their snowball payments. Some argue that you should pay down the largest balances first. Others argue that paying off the smallest balances first will result in faster elimination of debt payments which can then go toward higher debts. Still others argue that the highest interest debts should be addressed first. Since the experts don’t agree, the best plan of action is the one that makes the most sense to you and your personal financial situation.

What Next?
After you have reduced your monthly bills down to basic living essentials, you should work on saving everything that is left over. Earmark some of the money for fun like family vacations you never got to take during the tighter budget days but invest a good majority away in retirement accounts, college savings, or an emergency fund. This will give you a good balance between being financially savvy and able to enjoy the fruits of your labor.