Last week on Twitter I mentioned that one of the toughest things about a debt snowball plan is sustaining momentum as you move through each of the debts. Early on, victories come quickly with smaller debts geting paid off on nearly a monthly basis, or so it was in our case. But later on you find yourself staring up at those last two or three piles of debt and realizing it is going to take months, or even years, to follow through on your financial goals. That’s when it is time to schedule some rewards for your hard work.
With the summer half over, and no vacation plans on the horizon, we have decided to schedule a long weekend in the near future for a short trip somewhere close. It’s a reward to ourselves for hitting a major milestone in our debt repayment plan – we are now completely free of car debt for the first time in our 11-year marriage!
Ideas for Setting Up a Getting Out of Debt Rewards Plan
- Share the rewards with your friends and family. Get everyone fired up about getting out of debt. For those with kids it often helps to let them know about the goals, even if you substitute dates for dollar amounts (i.e. we would like to pay off our car by September, rather than we need to pay off $9,000 in car debt). Besides getting them excited about getting out of debt, it also helps soften the blow each time you say “no” to their request for a new toy. They know the whole family is on a plan to get to debt freedom!
- The reward should be in proportion to the level of sacrifice to achieve the related milestone. In other words, don’t schedule a cruise to celebrate paying off a $300 medical bill. But do schedule one (if that interests you) to celebrate paying off your $40,000 in student loans!
- Put together a sinking fund for your “Rewards Account.” The last thing you want to do is celebrate paying off debt by charging a trip for the family to Six Flags. Instead, create a sinking fund in a dedicated checking or online savings account, and move some money out of each paycheck there to fund a “Rewards Account.” When you hit your debt milestone, withdraw your cash and enjoy!
- After celebrating, get right back to work paying off remaining debts. Now is not the time to grow complacent. As soon as your vacation is over, or you’ve spent some time enjoying your new purchase, get right back into your debt snowball plan and work towards that next milestone.
Getting out of debt is as much about being disciplined emotionally as financially. If you become burned out with your debt repayment plan long before you pay off 50% of your debt, chances are you will never make it to debt freedom. Planning a few rewards along the way will help keep you and your family on track.
In case you are wondering, our next milestone to celebrate is when we’ve paid off all but our final credit card. The reward? A new living room sofa. When we are totally debt free? We’re finally going to Disney World!