Snowballs In May

I am officially starting my Christmas list today. Not my wish list, but my gift giving list. It shouldn’t be too hard, I mean, after all the same people are on it every year and though all the kids are growing up at lightning speed, all the adults are pretty much the same.

What’s the hurry you ask? Well, I was just reviewing the ball-and-chain that is my credit card debt and I am fed up! Next Christmas I will have all of my shopping out of the way by Thanksgiving (isn’t that we all say every year?) and I will not need to charge one single gift to a credit card. (Suze Orman says that we Americans spend money that we don’t have trying to impress people that we don’t like and that we only see once a year anyway.) Of course, it’s my own dumb fault. I had them all paid off once before, but I didn’t stick to my conviction to live debt free. (Consumer debt, that is…I understand the need for the home mortgage, though there was a time when I disdained that as well.) And it’s not like I don’t know Christmas is coming.

 

Maybe for some people it’s not that big a deal, but my husband and I are pretty well set in the jobs we have now (on staff at a particular ministry) and increases in our income come from extra work, i.e. side jobs, overtime, part-time businesses, etc., so moving up a corporate ladder and/or pushing for raises and promotions are not options. And if we didn’t have the added debt payments, we would be able to put more in savings, actually save for retirement (don’t shoot me, I know how important that is,) and maybe even take a vacation once in a while.

Well, I have a plan! You may have heard of a little thing called a Debt Snowball. It’s a plan where you pay off your credit cards one by one by paying off the smallest balances to the highest and applying the payment for each paid off account toward the next one until they are all gone. In effect, you are beginning with one monthly amount paid toward your debt and you never decrease that amount as each one is paid off. This continually increasing amount added to each payment is called your Debt Snowball. I learned about this years ago from Mary Hunt. I used to receive her newsletter called Cheapskate Monthly, which has now progressed to a website called Debt-Proof Living, after her very popular book by the same name. You can pay a yearly subscription fee to have access to her debt pay-down calculator as well as other handy calculators.

Another great debt-freedom guru is Dave Ramsey. He also has the Debt Snowball calculator in his paid subscription area. I subscribe to his free daily podcast, The Dave Ramsey Show, on iTunes. It’s really good. You should check it out. He also has some great books to help you on your journey to debt freedom, such as Financial Peace and The Total Money Makeover. Much more info is also available on his website.

I have a really good budget in place, but like I said, that debt portion of it is way too big. A couple months ago, when I made the decision to do something about that, I decided to check the web and see if I could find a free Debt Snowball worksheet. I didn’t have to look far. I Googled it and found one right away. The website, Vertex42.com, also has many other handy calculators. They are all Excel spreadsheets, but they are already set up so you don’t have to know how to format a spreadsheet to use them. Just follow the instructions and fill in the blanks. The formulas are already plugged in. I have been playing around with mine for a few weeks until I was sure I was ready to take the plunge and add my extra “Snowball” amount to the monthly payments that I’m already making.

With the extra amount I’ve added, I will pay off my lowest balance card this month, my second one next month and then every fourth month after that, another one will be paid. I would have saved a few dollars by paying the highest interest accounts first as opposed to paying the lowest balance accounts first, but the psychological boost of seeing that progress happen quickly is worth that few extra dollars. Seeing your efforts produce the desired results is a great morale booster and a great incentive to stick with it and keep the (snow) ball rolling!

My debt freedom date is in 24 months, which I can get to sooner as I have opportunities to add some extra funds to my snowball. Or on the other hand, if Murphy shows his ugly head, I can back off the snowball for a month and

then pick up the pace again the following month. One thing that is key to a successful Debt Snowball that I forgot to mention is something that I learned from Dave Ramsey. It is essential to have an emergency fund in place for those unexpected expenses that pop up. Otherwise, you will be tempted to grab that credit card again.

He teaches that your “baby emergency fund” should be at least $1000 before you begin your debt pay-down, but I only have half that in mine and I’m tired of fiddling around. I may have jumped the gun, but I know myself and I know I am ready to do this thing and stick with it. Once you are free of your consumer debt, then you should begin to work on having a full-grown emergency fund of 3-6 months living expenses in some type of easily accessible account and begin working on paying off your house. I don’t need to tell you that paying your mortgage off earlier than 30 years will also save you a bundle in interest payments.

 

I’d be interested to hear how you are tackling your debt situation or if you even have one. Please leave me a comment and let me know what strategies may be working for you.

Have a happy day!

The Caffeine Queen