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Friday, January 25, 2008

Avoid Melting Your Debt Snowball


$1973.08

That is is the size of my total Debt Snowball. It will be the size of my Snowball unit my last payment is lower then that amount. That sounds really impressive until you hear that my current Debt Pool is $54,165.19!

We have paid off 6 debts so far with the snowball:

  • Dentist Bill #1 - $147
  • Kohl's CC - $204
  • Dentist Bill #2 - $290
  • Providian CC - $1055
  • PayPal - $1220
  • Braces (More teeth!) - $2380
  • Total - $5296.63

Now we have continued pay the minimum on other debt as well and our payment on debt #7 is now $292.99 vs. a minimum of $98.51, so we are now contributing nearly $200 more to our debt. Once we pay that off we will be paying $639.28 on our car payment, or the entire $292.99 more then the payment book price!

As we pay on time, our minimums are going down on debts 7 through 12. We interpret Dave Ramsey's concept to continue to pay the exact minimums, and take the difference and apply it to the active snowball, or in our case, $292 on the State Farm credit card. Others continue to pay the original payments and pay all of the other debts a little faster at the expense of the compounding snowball.

I have always said due what works for you, but for us it feels good to put everything (hopefully including the tax rebate) to the current #1 debt. The important thing is to leave the snowball money as snowball money. In other words don't take that and add it to your 401K or something else, as the idea is to get through Baby Step #2 (paying of non-mortgage debt) ASAP.

So the best advice I can give is that although it is winter (at least in the Northern Hemisphere) don't let your debt snowball melt...it is your key to freeing yourself from debt chains and being able to manage your money.

12 Comments:

Ian Denny said...

I just heard about the rebates being handed out in the US.

It's amazing how the rest of the world looks to the US economy as a benchmark for the future.

I hope it helps stimulate the US and we all avoid a recession.

I've read about Dave Ramsey and the snowball effect. I think it's good to focus on high interest.

Unfortunately, I couldn't cope - my debt mountain was just too big!

I managed to avoid bankruptcy by entering a managed agreement through a charity. We're still mid-negotiation, thankfully the charity acting as the mediator, and had our first agreement through for an interest freeze and acceptance of our plan over 10 years.

It's a big relief. Much of the debt followed me from a business failure into the personal world.

Okay, so the credit rating has gone. And as the debt will take 10 years, and then a further 6 years beyond that before the rating is repaired, I'll 53 by the time I can take a credit card.

But that's a good feeling. I can only spend what I've got, and 16 years without access to credit is probably enough time to learn to do without credit and save for things instead.

I hope the car lasts for another 10 years!

Kansas Simplicity said...

Great progress.....impressive and keep up the great work.

RacerX said...

@ Ian - Actually you will be surprised. Yes you will take a big hit now, but by paying on the debt it shows your credit-worthiness as well. If you continue to act in a responsible way about your debt I would bet in 5 years you will have a great FICO Score. My Mom went through a bancrupcy and now has great credit.

@Kansas - Thank you, but you are the inspiration here!

Thank you both for reading!

paradigmshifted said...

good reminder! my debt snowball will shrink a little in march, but i'm planning to make it up in may.

RacerX said...

Great! One step at a time and you will clear it out in no time.

It is funny. My oldest is 15 and beieves she will "Never" get out of High school! Time flies pretty fast and little improvements each month add up quick!

Love your blog, and thanks for reading mine!

writerwoman said...

That is an enlightening article.

There has been some talk on the news that with the tax rebates Congress is working on that a lot of people may use the money to pay off debts. Not what the government wants but it makes sense for some people. With the economy shaky, its good to pay the bills ahead of time when you can.

RacerX said...

I think the rebate are sized so in case people have debt they will be able to at least split the rebate and spend some. Then the hope would be that, you are spending anyway...

Welcome and thanks for reading!

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