The Debt Snowball - how to pay off debt. Get YOUR money back!
Hey Y'all! What if every time you got paid, you got to decide how to spend your money? What if your only monthly payment was your mortgage? What if you didn't have a car payment, credit card payment or debt, student loan, medical bill, or any other monthly payments to make? The majority of Americans have multiple debt payments and many others live paycheck to paycheck. Often times the money runs out before the month does.
Can you imagine if you didn't have a $400 student loan payment and $350 car payment each month? What would or could you do with that extra $750 a month? These are fairly mild examples depending on where you went to school (and how much parental or scholarship help you got) and how long you've been paying the loan back, as well as what type of car you're driving.
I remember as I paid off my car a few years ago, I literally had the thought that I should start looking for a new-to-me car because I assumed it was normal to have a car payment every month. I could afford to pay the payment. Then I realized my car was in pretty good shape and only had about 70,000 miles on it. I decided to "snowball" this payment onto my student loans. I increased my $525 monthly student loan payment by $250, which was my car payment, and all of a sudden I was paying off $775 a month on my student loans. I had made a lot of progress prior to this, but only a few months later I was done paying off my student loans.
The "debt snowball" is a Dave Ramsey term that puts all of your (or you and your spouses) debts in order smallest to largest. You pay minimum payments on all but the smallest debt, which you pay as much as you can. When you pay off that smallest debt, you then roll all of that payment into the next smallest debt or monthly payment. Your "snowball" continues to get bigger and get rolling, and pays off debt with momentum making you really feel the progress. One thing that was incredibly helpful for me was that as I received a raise, or picked up additional jobs and had extra income, I didn't change my lifestyle. I automatically applied that new income to my debt, or savings account as I went.
The biggest common argument to the debt snowball is that it doesn't factor math into the equation, that you may end up paying more in interest if you paid off loans with the highest interest first. However, the biggest argument to that thought process, is that if you were great with your finances, you probably wouldn't be paying off debt in the first place. You don't want to be paying off student loans when you're 50. Let's develop a plan to get them out of your life asap!
Megan and I have worked to have all of our debt paid off (student loans, credit card balances, and car loans). We've sworn off debt, besides a mortgage, for the rest of our life. We like fancy stuff just like everyone else, but have decided to have different priorities than what marketing campaigns tell us we should have. Our best method for avoiding getting into a situation we aren't thrilled about is making decisions together, and delaying our pleasure by not making snap decisions on large purchases. Everyone has a different definition of "large purchase." We do this with everything over $100 or items that aren't in the budget that we create together. Large purchases would definitely be anything that you didn't have the cash to purchase outright.
Before saying we are crazy and thinking it can't be done, think about what it would be like to no longer have those payments. There would be no worry about someone calling you about owing them money. There would be the ability to save for your kid's college, go on vacations without guilt, do nice things for others, and more. In general, life becomes much less stressful.
None of this is easy. It takes discipline, just like everything else in life that you strive to be good at. If you string a few good weeks together, then a few strong months, and great years, think of all the progress you could make. Getting started is the hardest part. I wish I knew what I know now when I was 23. I'm glad I didn't wait to find it out til I was 43. However, the present is the only time you have to improve your current situation. Pretending those bills, payments and stresses don't exist won't make them go away. Be proactive!
Remember, my biggest intention of this blog is to help people. I'm sharing all of this info to create thought, and help those seeking it. I remember when I first started following a plan how it felt really hard, was confusing, and didn't seem possible. Then I had some small gains and saw progress. Today, Megan and I could tell you exactly what we spend per month on restaurants, groceries, estimated electric bill, rent, internet, no cable, and the best part, that $0 per month leave our accounts on debt. We truly control where our money goes without taking a guess later.
I'm happy to help if you have questions or need some guidance. Get your snowball started!
Can you imagine if you didn't have a $400 student loan payment and $350 car payment each month? What would or could you do with that extra $750 a month? These are fairly mild examples depending on where you went to school (and how much parental or scholarship help you got) and how long you've been paying the loan back, as well as what type of car you're driving.
I remember as I paid off my car a few years ago, I literally had the thought that I should start looking for a new-to-me car because I assumed it was normal to have a car payment every month. I could afford to pay the payment. Then I realized my car was in pretty good shape and only had about 70,000 miles on it. I decided to "snowball" this payment onto my student loans. I increased my $525 monthly student loan payment by $250, which was my car payment, and all of a sudden I was paying off $775 a month on my student loans. I had made a lot of progress prior to this, but only a few months later I was done paying off my student loans.
The "debt snowball" is a Dave Ramsey term that puts all of your (or you and your spouses) debts in order smallest to largest. You pay minimum payments on all but the smallest debt, which you pay as much as you can. When you pay off that smallest debt, you then roll all of that payment into the next smallest debt or monthly payment. Your "snowball" continues to get bigger and get rolling, and pays off debt with momentum making you really feel the progress. One thing that was incredibly helpful for me was that as I received a raise, or picked up additional jobs and had extra income, I didn't change my lifestyle. I automatically applied that new income to my debt, or savings account as I went.
The biggest common argument to the debt snowball is that it doesn't factor math into the equation, that you may end up paying more in interest if you paid off loans with the highest interest first. However, the biggest argument to that thought process, is that if you were great with your finances, you probably wouldn't be paying off debt in the first place. You don't want to be paying off student loans when you're 50. Let's develop a plan to get them out of your life asap!
Megan and I have worked to have all of our debt paid off (student loans, credit card balances, and car loans). We've sworn off debt, besides a mortgage, for the rest of our life. We like fancy stuff just like everyone else, but have decided to have different priorities than what marketing campaigns tell us we should have. Our best method for avoiding getting into a situation we aren't thrilled about is making decisions together, and delaying our pleasure by not making snap decisions on large purchases. Everyone has a different definition of "large purchase." We do this with everything over $100 or items that aren't in the budget that we create together. Large purchases would definitely be anything that you didn't have the cash to purchase outright.
Before saying we are crazy and thinking it can't be done, think about what it would be like to no longer have those payments. There would be no worry about someone calling you about owing them money. There would be the ability to save for your kid's college, go on vacations without guilt, do nice things for others, and more. In general, life becomes much less stressful.
None of this is easy. It takes discipline, just like everything else in life that you strive to be good at. If you string a few good weeks together, then a few strong months, and great years, think of all the progress you could make. Getting started is the hardest part. I wish I knew what I know now when I was 23. I'm glad I didn't wait to find it out til I was 43. However, the present is the only time you have to improve your current situation. Pretending those bills, payments and stresses don't exist won't make them go away. Be proactive!
Remember, my biggest intention of this blog is to help people. I'm sharing all of this info to create thought, and help those seeking it. I remember when I first started following a plan how it felt really hard, was confusing, and didn't seem possible. Then I had some small gains and saw progress. Today, Megan and I could tell you exactly what we spend per month on restaurants, groceries, estimated electric bill, rent, internet, no cable, and the best part, that $0 per month leave our accounts on debt. We truly control where our money goes without taking a guess later.
I'm happy to help if you have questions or need some guidance. Get your snowball started!
Comments
Post a Comment