Tips for Getting Out of Debt with the Pyramid Method

Accumulating debt is easy, you get a credit card or two when you are young and you have fun purchasing and traveling. Slowly but surely you find yourself drowning in a sea of high interest rates that don't appear to be going anywhere. Getting out of debt can appear to be harder than building the great pyramids. It doesn't have to be. In fact, you can use the concept of building a pyramid to get yourself out of debt. Use the following steps to get out of debt using the pyramid method and get in charge of your finances once and for all.

Build your debt pyramid. A pyramid is built from the bottom up and your debt pyramid will be built using the same concept. Gather all of your debts in one place. You can create your own spreadsheet using any spreadsheet software or download a template from the Internet. Using the spreadsheet list all of your debts in order from the lowest amount owed to the highest amount owed. Include any revolving debts and installment loans. For this part of your pyramid you don't need to include your mortgage or student loans. Set this aside and move to the next step. (See Resources for Link)

Create a financial snapshot. Using a spreadsheet from Step One you need to create a budget that shows every bill you pay on a monthly basis. You also need to create a column for your income. Kiplinger has an automatic worksheet to make this step easier, the end result is to see how much extra money you have available to devote to eliminating one credit card at a time. Make sure your debts from Step One are grouped together as these are going to be what you focus on. (See Resources for Link)

Put your pyramid to work. Using the amount of money you have left over every month after bills and necessities you will begin at the top of your pyramid and work your way down. The top of your pyramid should be your lowest balanced credit card. Add a portion of your monthly money from Step Two to the minimum balance on this card. You will continue to pay this amount every month while paying the minimum on your other credit cards.

When you get the top card paid off, move to the next credit card. Increase the minimum payment on this card by the same amount you were paying on the first card. This increases your monthly minimum on that card and gets it paid off faster as well. Continue in this process until you have paid all of your credit cards off.

Use any extra money you get to help tear down your debt pyramid. MSN Money suggests that all extra money go toward debts, this includes bonuses from work, lottery winnings, though if you are trying to pay down debt you really should leave the lottery alone until later. The key is to put all extra money towards paying off the credit card debts before you spend money on frivolous items.