In The Game of Thrones, the Lannisters are the wealthiest and most powerful family in the Seven Kingdoms.  They’re not afraid to leverage their wealth to forge key alliances and advance their political agenda.  But despite being known for plotting and treachery, the unofficial motto for the family is, “A Lannister always pays his debts.

Always pay your debts

Unless you’re deep in debt – like this couple who paid off $215,000 in five years – you probably don’t need to appoint a Master of Coin to keep track of what you owe.  A few simple rules should suffice:

Start with why

Identify the cause of your debt.  Was it the result of a few bad choices in the past or is it because you consistently spend more than you earn?  The only way to stop a money leak is to track your spending and find the source.

Start with the essentials – fixed costs like rent, insurance, and your car payment – that don’t change from month-to-month.  Then identify those variable costs that you can control, like how much you spend on groceries and take-out, cable and internet, bank fees and subscriptions.

Related: What’s busting your budget?

If what’s left over is enough to make your monthly minimums, but no more, you need to go back to the drawing board and find ways to cut your expenses or earn more money.

Once you have a good handle on where your money goes, and have identified an amount that you can afford to pay beyond the minimum payment, it’s time to make a plan to get out of debt for good.

Highest interest first

The most logical strategy is to start with the debt that has the highest interest rate, rather than the highest balance.  The interest rate on consumer debt – particularly on store credit cards – is astronomical.  It will take you decades to pay off the balance unless you make more than the minimum monthly payment.

List your non-mortgage debt in order of highest interest rate to lowest.  Then add up all the minimum monthly payments.  The difference between your remaining cash flow and the minimum monthly payments is the amount you can use to tackle your most expensive debt.

Related: The Burden of Debt

For example:

Debt Balance Interest rate Minimum payment
Credit card A $5,000 29.9% $175.00
Credit card B $2,500 17.9% $62.00
Student loan $8,000 5.5% $113.00
Line of credit $15,000 4.0% $50.00 (interest only)

The minimum payments total $420 per month and you’ve found $800 in your budget to commit to a debt repayment plan.

With this modified debt snowball, you’d make the minimum payment on credit card B, student loan, and line of credit, and add the extra $380 per month to credit card A’s minimum payment.

The result: A $555 monthly payment would clear the balance in 11 months and save over $11,000 in interest payments versus making the minimum monthly payment.

Next debt up?

Now that the highest interest balance has been paid off (whew!) it’s time to move on to credit card B.  After 11 months, your debt balance sheet looks something like this:

Debt Balance Interest rate Minimum payment
Credit card A
Credit card B $2,238 17.9% $56.00
Student loan $7,162 5.5% $102.00
Line of credit $15,000 4.0% $50.00 (interest only)

You still have $800 per month to dedicate toward debt repayment but with one dragon slayed you can shift your extra $380 – PLUS credit card A’s $175 minimum monthly payment – over to credit card B.

The result: You’ve got $648 per month to put toward credit card B’s balance.  The aggressive payment clears the balance in just four months and saves you $2,000 in interest.

With the expensive credit card debt out of the way it’s time to shift focus to the student loan balance.  Here’s where you stand:

Debt Balance Interest rate Minimum payment
Credit card A
Credit card B
Student loan $6,880 5.5% $98.00
Line of credit $15,000 4.0% $50.00 (interest only)

Slaying two dragons has freed up $750 per month for you to aim at the third.  You take this one down in short order – just 10 months to be rid of your student loan debt.

Mother of Dragons

You had less than $400 per month to fight your debt battle (above minimum payments) and in 25 short months you’ve managed to lay siege to $15,500 in credit card and student loan debt.

But glaring in the background is the mother of dragons – the home equity line of credit that you’ve been paying homage to with interest-only payments over the last two years.

Related: Does your budget allow for overspending?

With all of your forces aligned you’re ready to make one last battle for debt freedom.  Throwing all $800 toward the line of credit you take down this beast in 20 months.  The kingdom is yours!

Final thoughts

Unless you want a Braavosi banker to chase you down, you need to take a page from the Lannisters and always pay your debts.

Start by figuring out how you got there in the first place, identify how much you can dedicate to debt repayment, and make a plan to tackle your highest interest debts first.  The Iron Bank will thank you.


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