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Step five toward getting out of debt addresses ways to use ‘found’ money to pay down debt. If you have completed steps one, two, three, and four, you’ll have an accurate picture of what you’ve really been spending your money on, will know what your fixed expenses are, and will have found ways to reduce your spending.

Now that you have ‘extra’ money each month (no matter how little) take a look at your existing debts and decide which one you want to focus on first, and pay only the minimums on everything but the chosen debt. How do you decide? There are two schools of thought on this. One (popularized by Dave Ramsey) is to list your debts in order from smallest to largest, regardless of the interest rates you’re paying, and then begin with the smallest debt. The idea behind that is that the psychological boost you’ll get from paying off debts quickly will keep you motivated. The other way is to list your debts in order from highest interest rate paid to smallest interest rate, regardless of the total amount owed. The idea behind that is that you will pay less interest.

Suppose you had the following debts: $500 at 11%, $10,000 at 21%, and $2000 at $19%. If you used the first method you would list them as $500, $2000, $10,000. If you used the second method you would list them as $10,000, $2000, $500.

Deciding which method to use is a matter of knowing yourself. For me, it would drive me crazy to pay on something that’s at 11% interest when I could be paying on the debt at 21% interest, AND I know that I have great stick-to-it-iveness even when it seems like there’s hardly any progress being made. So I would choose method two. Someone who gets really excited at seeing debts wiped out quickly or who gets depressed at a seeming lack of progress might choose method one. The point is to choose whichever method works best for you. They will both work.

Next, take every extra cent you can find in your budget (or make by selling things you no longer need, doing surveys, babysitting, getting a second job, etc) and send it and whatever extra you had been paying toward your other debts to debt you’ve chosen to focus on first.

Unless there is a penalty for doing so, make a payment as soon as you get the money. Have an extra $5 today? Go online and make a $5 payment toward your chosen debt. Get an extra $20 tomorrow? Do the same thing. Don’t wait until the bill is due or until you have a certain amount “saved up”. Just pay every chance you get. (Just remember to make the regular payment before the due date as well.) The point of doing this is twofold: if your interest is calculated daily, you’ll reduce the amount of interest you’re paying and will pay off your debt faster, AND the chances of you really sending every extra cent toward the debt greatly increase. After all, if you don’t have the money laying around, you won’t be tempted by a stop at the donut shop instead. Once your chosen debt is wiped out, choose the next debt in line to focus on. Your debt repayment will get faster and faster, because as each debt is paid off, you’ll be able to use the money you were paying toward that debt toward the next debt in line. You may want to make a spreadsheet or a chart to track your progress. Remember to celebrate each step of the way.