Hey budgeting people,
The debt pinball is a debt repayment concept I found in the treasure trove of YouTube. The video this post is based on is: Digging Out of Debt with Lanette.
Please check it out. It is a genuinely interesting concept, and she explains the story to how the Debt Pinball came out.
The premise of the debt pinball is to knock out the highest monthly debt payments first. This frees up room in your monthly budget to create cash flow. Then when you have room between your income and necessities, you begin to slowly pay off debts.
The original idea was created because the creator’s family was working in the red every month. She lived in a situation where the other debt payment strategies were simply not suitable.
Sometimes expenses are more than the monthly income and there is nothing you can really do. The conventional advice is unhelpful in these situations.
As all the minimums couldn’t be paid every month, they let some of the older debts, and personal debts, to be paused.
While, I wouldn’t recommend not paying debts, unless it is absolutely necessary, or you cannot afford it anyway. Chose the oldest, and most flexible debts to pause for a while.
The best debts to pause paying would be these (in order):
- Those you haven’t been paying anyways, *
- Really old debts
- Personal loans – from friends and family.
- Any other debts that are: * & **
* Unless they are related to your living situation, transportation, food and utilities
**Only if you have still not got a $0 at the end of the budget and in minus numbers. You have paused 1-3 and reduced and cancelled everything else. Then you do 4.
The older debts if you can, as they have most likely given up and will be willing to negotiate a lesser payment.
Don’t use not paying until the collection’s office can’t be bothered anymore as a debt payment strategy as it will completely wreck your credit score.
Also, any personal loans, from friends and family.
This is because:
- They know you,
- Unlikely to constantly harass you for the money,
- They are more likely to be empathetic, if you explain your situation.
As a rule, I don’t recommend borrowing from friends and family but if you do, tell them your plan to get on track and keep them updated. Your friends and family will be more supportive and kinder when you take longer than expected to pay them back
Just acknowledge you have borrowed from them, and that you will pay them back.
After you have written your bare necessities budget, which you have tried to reduce as many expenses as possible and decided on which debts you aren’t paying, you need to begin generating more income.
Side hustling, overtime and selling extra things are essential if you can.
This is the hardest part. Not only you have to find a decently paying side hustle for time and effort given, you need to find the motivation to follow through.
Step four is targeting the biggest budget payments/debts. This is the biggest monthly payment. Then begin paying it down.
The more payments you get rid of, allows for more aggressive payments and getting back on track.
You need to knock out anything that is going free up as much cash flow over a short period of time. Do not pick something that is going to take you multiple years.
This is a definitely a stressful route and shouldn’t be taken lightly. You will be contacted by collections departments, and despite your hard work, once you get the budget to balance that there is still loads of debt to be paid.
Now, to be clear, I am not endorsing not paying what you have borrowed but to temporarily pause paying things which will help you keep a roof over your head and food in your stomach while enabling yourself to create a gap between your expenses and income. Therefore, you can get yourself current.
In my opinion, this method is great for getting your budget to balance and getting set up so that you can begin paying down on bills and debts without being in a constant deficit.
The pros are that you are being systematic in your debt payoff, and only focusing on one account at a time which studies have shown mean you will be more successful in your debt payments.
This method is helpful because you make a conscious decision on what you are paying and what you aren’t. It also allows you to have more control of where your money is going.
You may argue that this system is risky – it is, as not paying on bills and debts can get you into trouble. However, if you cannot genuinely pay all your expenses every month, you get the same result. You can’t afford to pay Visa, so you don’t.
The cons of this system are that it will completely destroy your credit as you are not keeping current on your all of your bills. On the other hand, you cannot afford all your expenses, so something is going to not get paid. May as well chose the bills with the least detrimental effects.
I wouldn’t suggest pausing debts if you could afford your all your monthly bills and repayments.
Pausing debts are a last resort. Don’t just ignore them because you want to put your head in the sand.
Yes, I (somewhat) follow this advice as well. It wasn’t an intentional, or strategic, but since some creditors weren’t asking for money – they told me I didn’t earn enough.
I took advantage of that assessment, as I wouldn’t be able to pay them back with any meaningful amount. Then I prioritised the ones I could afford to pay.
Don’t be fooled by their kindness – they are tacking on plenty of interest every month.
I appreciate this method is maybe controversial, so please let me know what you think; while being kind and self-aware. If you have nothing nice, constructive or helpful to add, please don’t.
Thank you for being considerate. I would love to hear your thoughts.
Disclaimer: To the best of my knowledge, “The debt pinball” belongs to Lanette – the owner of the channel “Digging out of debt with Lanette”. This is her concept and I am just making commentary on it. Also, most of the post is my take on her concept. So, if you see the video and are confused about some things, I have said about how to utilise it, it is how I would do it. You do not have to take my advice, but it is there to be considered and modified to your situation.