Getting out from under debt

Debt may seem overwhelming, but freeing yourself from it comes down to picking a repayment strategy and getting to it

These days, it’s difficult to find a colleague who does not have debt. Think about it… student loans, practice loans, equipment loans, possibly a line of credit. Then there is personal debt in the form of a mortgage, car loan(s), credit card balances, and more. Sure there is “good debt” and “bad debt,” but how do you get it all paid off?

There are two main strategies to eliminate debt from your life: the debt snowball and the debt avalanche. We will also look at a lesser-known concept that prioritizes debt repayment: the cash flow index.

Debt snowball

Having a constant barrage of minimum payments every month can quickly become overwhelming. The snowball method helps you systematically pay off these small debts, one by one: veterinary bills, store credit cards, loans from family, etc. It’s empowering to see you can rid yourself of this burden and then take on your larger debts with more confidence… and financial ammunition.

With the debt snowball, you pay the smallest balance to the largest, regardless of the interest rate. Like a snowball rolling down a hill, you build momentum with every loan you pay off.

To begin the debt-slashing process, lay out all your smaller debt invoices in front of you. Prioritize them from lowest balance to highest: debt A is the smallest balance, followed by B, then C. Once you have established how much you can pay in total every month toward these bills, make the minimum payment for debts B and C. Whatever is left after your minimum payments are fulfilled gets applied to debt A.

Once debt A is paid off, debt B becomes your next target. Like a snowball getting bigger as it rolls down a hill, you now can apply the payment from debt A (which has been paid off) toward debt B in addition to its minimum payment. This facilitates paying off all the small debts, progressively eliminating the overwhelming amount of money due every month.

This method can be very encouraging for colleagues who look at debt as insurmountable. By methodically paying off small debts and rolling those payments over into the next one, it builds up the amount you can pay with each eliminated loan. This method can help grow your confidence toward paying off larger amounts and make debt appear more and more manageable.

Debt avalanche

The avalanche method takes a different approach. Rather than focusing on the debt with the smallest balance, you begin with the one with the highest interest rate, regardless of the amount owed.

As you can imagine, this method saves more money by decreasing the amount paid in interest. However, it does not have the same encouraging feeling of paying off debt quickly. The process is the same, though. Make the debt with the highest interest rate priority A. Once debt A has been paid off, you roll that payment into debt B and so on.

So which technique is better? Mathematically speaking, they are about the same. Sure, there is a small difference in the end (which depends on your total debt balance), but likely not significant enough to influence choosing one method over the other based on math alone. Which concept you prefer really depends on your psychology. The avalanche method saves more money in the long run, but requires bigger payments up front. If you need more immediate results and more motivation to stick with your fight against debt, the snowball method is the better choice.

Cash flow index

Another concept to consider is determining the cash flow index for each loan. This is a simple equation that helps you decide which loans are hurting your cash flow the most and should be paid off first.

To figure out the cash flow index, gather all your loans, including your mortgage. Divide the total balance of the loan by the minimum payment. The result represents the cash flow index for that loan.

Let’s take an example. If you have a $15,000 loan with a minimum monthly payment of $250, the cash flow index for that loan is 60 (15,000/250).

A cash flow index that falls between 0 and 50 is considered to be in the danger zone. This means it is a very inefficient loan and should be paid off as soon as possible. An index between 50 and 100 is considered to be in the caution zone; its urgency should fall somewhere in the middle of the pile. An index of 100 or higher is considered to be in the happy zone, meaning it is a very efficient loan and a low priority.

Although the concept you choose is totally up to you, don’t waste too much time trying to figure out which one is better or will save you the most. Just pick a method and do it!

Now that you have decided on your approach for paying off debt, there are other things you can do to help facilitate your goal of becoming debt-free. Consider the following:

  • Until you’ve repaid your debt, always pay cash for everyday items, rather than using a credit card.
  • Some financial experts recommend building your savings first in a bank account. By doing so, you help reduce the risk of ending back in debt, should there be a sudden change in your financial status. It’s rewarding to be debt-free, but if you are not adequately prepared to handle life’s little curveballs, you could very easily find yourself in debt again.

Start saving by embracing the “pay-yourself-first” mentality. Ideally, save 10 percent of your income and set that aside before paying any bills. Paying yourself first is a simple way to build savings. Once you get into the hang of it, you won’t even miss that money.

  • Consider restructuring your loans. Contact your credit card or loan companies to see if they will give you a lower interest rate. Simply tell them another company is offering you zero percent interest for X number of months and see what they say. Try rolling the amounts owed into a tax deductible loan like your mortgage, especially nondeductible high-interest loans.

By consolidating your debt, you are minimizing the number of payments you have to make each month, regulating your cash flow and hopefully paying things off a little sooner. As your stack of loans dwindles, you can put more money aside toward savings, your “fun” account, or your next vacation. Once you get the ball rolling, it will only get better.

Remember that you need to make better spending choices in the future to avoid ending right back where you started.

  • Educate yourself so you don’t make the same mistakes over and over again—learn the difference between good debt and bad debt.

Getting out of debt is wonderful. Staying out of debt is even better.

Phil Zeltzman, DVM, DACVS, CVJ, Fear Free Certified, is a board-certified veterinary surgeon and serial entrepreneur whose traveling surgery practice takes him all over Eastern Pennsylvania and Western New Jersey. You can visit his website at He also is cofounder of Veterinary Financial Summit, an online community and conference dedicated to personal and practice finance ( Kat Christman, a certified veterinary technician in Effort, Pa., contributed to this article.

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