The repayment order, smallest first or the one that weighs most?
From the last lesson you have a sheet with everything you owe and a monthly surplus from cutting and extra work. The question now: which line does that surplus go to? Spreading it evenly across all of them is the worst answer, because you pay for a whole year and nothing closes. The right answer is to pick one line and pour everything into it until it's gone, then move to the next. The only argument is which one to start with.
What you'll have at the end
A written order for the debts on your sheet, a rule for windfalls, and an expected closing date for the first line.
Step one: pick the method that suits your character
Method one, the snowball: order the debts from smallest balance to largest and close the smallest first. Its advantage is purely psychological: a line that closes in two months gives you a sense of control that keeps you going. Most people who abandon a repayment plan do it because they never saw a result, and this method shows one early.
Method two, the heaviest first: some debts aren't measured by the amount. Money owed to someone who chases you, threatens your reputation, or makes your wife dread the phone ringing gets closed first whatever its size, because the cost of leaving it open isn't money.
The rule: if your sheet has a debt of the second kind, start there. If it doesn't, snowball.
Step two: order the sheet
Rewrite the debts in the order you chose and number them. Line one gets the entire surplus on top of its ordinary instalment. The rest get their ordinary instalment only, nothing more. That's focus, and the others wait their turn.
Example: three debts, 3,000 AED to a shopkeeper, 12,000 in phone and furniture instalments, 40,000 on the car. Surplus 1,500 a month. The shopkeeper closes in two months. Then the whole 1,500 goes on top of the furniture instalment. When that closes, its instalment plus the surplus moves to the car. The ball grows as it rolls, which is where the name comes from.
Step three: send every windfall to number one
A bonus, cash given at an occasion, a refund, something you sold that you didn't need. Every amount that wasn't in the budget goes straight to debt number one, the same day, before it dissolves into the account. Some people ask friends for the cash value of a gift at occasions for exactly this, and there's nothing wrong with it. These small flakes shorten the plan by months.
Step four: work out the closing date and write it down
What's left on debt number one, divided by what you'll pay toward it each month, gives the number of months. Write the date on the sheet and in the phone calendar. A plan with a date gets carried out; a plan that "ends when it ends" doesn't end.
Step five: celebrate the close, then don't stop
When the first line closes, celebrate with something that costs no money, and cross it off the sheet with a thick pen. Then, the very next month, its full amount moves to number two. The month you "rest" between two lines is the month the old habits come back.
Where most people trip
Around month four, when a large windfall arrives. An annual bonus, say. The temptation is that you "deserve" something after months of squeezing. Remember then that every thousand going to the debt now shortens the whole of emergency mode, and that whatever you'd buy will be far sweeter after the close, with no instalment on it.
Tonight's exercise
Order the sheet and number it. Work out the closing date for number one. Set a phone alert for that date titled "cross off line one".
Questions I get asked
I have a large debt with fixed instalment dates, and a small one to a relative with no date. Start with the small one?
Yes, by both methods at once: it's the smallest and it's the one that gets forgotten. Close it in a month or two and be rid of the look on his face.
Should I sell gold to close a debt?
If the debt is weighing on you or carries late penalties, yes. Gold can be bought again a year on. If the debt is quiet with a clear schedule, keep the gold and pay from the surplus.
I closed a line and a new one appeared for an emergency.
That's what the emergency fund from the last lesson is for. If it wasn't enough, put the new one in its place in the order and carry on. What breaks a plan is stopping; one setback gets absorbed.
Log your instalments in Fawatery with their payment counts, and when you pay above the instalment you see the balance shrink and the expected date come closer
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Based on: "How to get out of debt in 5 steps and become free".
The last lesson in this module is about never ending up back here: why instalments look easy, and which purchases on instalment wreck a household budget.