What is Debt? Consumer or Mortgage

In my previous post, I discussed what makes up a budget. Everyone needs a budget because it informs us about what is coming in and going out. 

However, there is one item in a budget that scares people: DEBT. What is debt? Debt is anything owed to someone. It's that simple. If you owe it, it is debt. 

In an article from Yahoo Finance in February 2025 by Elizabeth Schulze, she wrote, “Americans’ household debt, including credit cards, mortgage, auto loans, and student loans, is at a new all-time high of $18.04 trillion, according to a report released Thursday by the Federal Reserve Bank of New York.  Overall debt grew by $93 billion in the last three months of 2024 and about half of that increase was new credit card debt, according to the report.  Americans’ total credit card balances now stand at a record-high $1.21 trillion.” 

THIS IS SCARY! Personal debt continues to grow, causing anxiety, fear, stress, and depression. Let’s take the first step and understand debt better. 

There are two types of debt: Mortgage and Consumer. 

Mortgage. This refers to the remaining amount on your personal home. This is not rent. If you have a second mortgage or PMI (private mortgage insurance), include that in your total. If you have a HELOC or a personal loan on the house, include it under Consumer Debt.

Consumer debt refers to the money owed to creditors that is not related to home mortgages. This includes student loans, credit cards, vehicle payments, furniture purchases, personal loans, collections, IRS debts and taxes, as well as medical expenses. Personally, I also consider the remaining balance on my cell phone, even though I am making monthly payments on it. 

When I am listing out my debts, you need three items:

1)    Current Remaining Balance

2)    Minimum Monthly Payment

3)    Interest Rates

How to pay them off?

Snowball versus Avalanche Debt Method

Three methods to pay off your debt are Snowball, Avalanche, and Emotional.

Snowball Method.  If you are a Dave Ramsey listener, then you know this method.  This is the method Krystal and I used when we paid off our $80,000 consumer debt in over 5 years.  Simply, it lists your consumer debt from your smallest remaining balance (not monthly or interest rate) to the largest.  You make the minimum payment on all debt.  Any extra money you have at the end of the month or paycheck, you will apply it to the smallest debt. Once it is paid off, you apply that payment to the next smallest debt.

Mathematically, it is not the quickest way to pay off debt.  The goal is to pay off the smallest debt to build your emotions and a sense of achieving a goal.  It is like celebrating the small wins.  It builds up like a SNOWBALL rolling down a mountain.  IT BUILDS MOMENTUM.  It did for Krystal and me.   When you are in thick of it, you need the small wins to feel you are moving forward in the process.

The next one is the Avalanche Method.  In summary, it is the opposite take of the Snowball Method of starting your highest balance or interest rates.  This can work, but I find it more difficult to build up the momentum and celebrating the wins. 

The last method I heard through a podcast called “The Money Nerds” by Whitney Hansen. She interviewed an individual who shared about Emotional Snowball. It involves listing your debts, but listing your first debt that brings the most emotional struggle to you. If you got this debt out of the way, how much more freedom would you have? I think debts such as medical, collections, and personal loans would be considered in this method. 

Recently, I had a client with over 20 line items of consumer debt, and I anticipated it would cause some anxiety. Once I coached and listed them from smallest to largest along with the monthly payments, they realized they could be debt-free in 5 years. Though she feared the total amount, seeing the timeline to pay it off motivated them to embrace the challenge. Since then, the client has aggressively paid it off and hopes to be debt-free in less than 5 years. 

If you’re looking for a tool to help you track your debts and know when to pay them off, visit Unbury.Me. It’s a free tool that allows you to list your consumer debt and see when it will be paid off through minimum payments.   If you want help with your debt and direction to take, connect with me. 

Ultimately, the decision and choice of method is up to you. Sometimes, we have to face our fears and know the diagnosis in order to move forward.  So, are you ready to Step Up & Start Now? 

Till next time, rock on to the fullest~

Ryan M