- Make three columns on a piece of paper in your notebook. In the first column, make a list of all creditors from the smallest balance to the largest. In the second column, write down the minimum monthly payment. In the third column, write the total balance due. Your list might look like this:Dr. Jones---$10 mo.----------$340Mervyns-----$15 mo.----------$472Sears--------$56 mo.----------$4200 Visa----------$150 mo.--------$7500
- Compare your debt to a pyramid. The smallest debt is at the top and the largest is at the bottom. To get rid of debt using the pyramid method, we will begin at the top, or in other words, with the smallest debt. Pay as much as you can toward the debt with the smallest balance, while only making minimum payments to the remaining creditors. If we use the example from above, our first month of payments might look like this:Dr. Jones: paid $40 ($10 minimum payment, plus $30 extra)Mervyns: paid $15 Sears: paid $56Visa: paid $15
- Continue as above until the debt with the smallest balance is paid off.
- Now, take the total monthly amount you were paying from the first debt and apply it to the next debt with the smallest balance, include the minimum payment that you have been paying for that bill. Continue to make minimum payments on the remaining bills.Dr Jones: paid in fullMervyns: paid $55 ($40 from the first bill, plus the $15 minimum payment)Sears: paid $56Visa: paid $150
- When the second bill is paid in full, apply the full amount of the monthly amount to the next bill on the list. Dr. Jones: paid in fullMervyns: paid in fullSears: paid $111 ($55 plus $56)Visa: paid $150
- Continue as above until all bills are paid in full.