The Debt Fire Hose — An extreme debt repayment plan for extreme times

There are a cou­ple of debt repay­ment options for you to choose from after you’ve real­ized that it’s time to get out of debt. One is the debt snow­ball. The other is snowflak­ing your debt, which is basi­cally the same as the debt snow­ball method with smaller numbers.

I would like to pro­pose a third option. A third option that draws upon the pre­vi­ous two, but will adds sacrifice.

The Debt Fire Hose

When you’re fight­ing a fire, you can’t use a gar­den hose. You need to put as much water as you can pos­si­bly muster to put it out. You need a fire hose.

The same holds true for get­ting out of debt. Sure, you can set a bud­get and fig­ure out how much extra that you can pay towards your debt as you do with the debt snow­ball, but with the fire hose you need to do more.

The Fund­ing Sources

The fire hose has to get the water from some­where. Dur­ing a fire, the water that comes out of the fire hose either comes from a fire hydrant, the tank of a tanker truck or via a body of water through a pumper truck.

The Fire Hydrant

Your income is like a fire hydrant. It’s a steady stream of money that you can pretty much count on to be steady for an extended period of time.

You can siphon off some of the money that comes from your income for debt, but by the time every­thing gets paid, you may just have a trickle left to pay a lit­tle extra in your debt.

The Tanker Truck

Think of your sav­ings account like a tanker truck. It stores the water that gets car­ried to fight fires. You can pay­off your debt from a sav­ings account, but at some point the tank goes empty.

The only way to get any­thing back in is to pour it in. You only have so much money to put into it. Sure you can put some of your sav­ings towards your debt, but do you want to empty that tank all together?

The Pumper Truck

The most ver­sa­tile truck to fight a fire with is the pumper truck. This truck can hook up to your fire hydrant, or it can drain a pond. If there’s water to be had, it can put it on the fire.

The fire hose debt repay­ment method is just like the pumper truck. It’s ver­sa­tile and it draws from any source of money it can find, but it does need help get­ting the most out of every drop available.

The Plan

The fire hose plan isn’t overly sim­ple, and it’ll take some time and ded­i­ca­tion to get setup. For starters, you need to know exactly where your money goes.

To do this, you should track every penny for at least a month. Cat­e­go­rize it into a few cat­e­gories like food, util­i­ties, rent/mortgage, enter­tain­ment, etc. Take a look at the One Month Chal­lenge at The Sim­ple Dollar.

Tip: If you don’t have a Mint.com account, you can sign up for one and enter all of your accounts. Once you’ve done that it can track all of your spend­ing for you, except cash trans­ac­tions. You’ll need to track those yourself.

One you know exactly where your money goes, you’ll need to start slash­ing. The idea here is that your cre­at­ing a pool of money for your debt reduc­tion pumper truck to come and put on your debt fire.

The Slash­ing

This is where peo­ple don’t put a hole lot of effort in. You have to ask your­self the hard ques­tions here. Do you really need cable TV? Do you need Net­flix? Do you need Star­bucks? You can make all the cases in the world for why you need to have those things, but that’s only ratio­nal­iza­tion of unnec­es­sary things. The answer is no.

Trim all of the fat. If you don’t need it to live, then cut it out of your finances. If you need inspi­ra­tion, just take a look at No Impact Man.

The Pool

Now that you’ve slashed every­thing, your pool will start fill­ing up with all of that extra income. With that pool, you send your debt reduc­tion pumper truck to turn it’s fire hoses on your giant debt fire. But you’re not done yet.

From here, you can choose to pay down whichever debts you want to pay down the most, but when you do decide which one to pay down, you turn your full pow­ered fire hose on and point it at that one item only. Don’t think about your other debts — other than those pesky min­i­mum pay­ments.

The Sac­ri­fice

The idea behind the fire hose repay­ment method isn’t vastly dif­fer­ent from the snow­ball or snowflake method. The real dif­fer­ence is sac­ri­fice. You need to give up quite a bit for the fire hose to be fully pow­ered. If your spend­ing extra money on things that you don’t need, then you’re just pro­long­ing your own debt rid­den misery.

To get out of debt you need to sac­ri­fice, but like No Impact Man, you may find that once you cut out all of the friv­o­lous things in life, you truly dis­cover the best things in life.

Tagged as: debt repayment, debt snowball, Plan, snowflake