Snowball Method

[KiwiJo09]

After reading all your posts about how great the snowball method works, hubby and I decided we were going to do the snowball method on our credit card debt. We are still building our emergency fund and such, but will be paying the minimum on other cards while we pay the smallest off slowly. I appreciate the ideas. And would like to know any other suggestions if you have them.

[bjl584]

Sounds like you have a good plan. My only advice would be to make sure that you don't continue to use your cards or to rack up debt in other areas (car loans, etc.) Just stay focused on the goal of becoming debt free.

[littleroc02us]

A couple of questions. First is where did you learn about the debt snowball idea. Second, is your plan to pay off debts and build an EF at the same time?

[KiwiJo09]

Originally Posted by bjl584

Sounds like you have a good plan. My only advice would be to make sure that you don't continue to use your cards or to rack up debt in other areas (car loans, etc.) Just stay focused on the goal of becoming debt free.

Our credit cards are currently in the freezer. LOL. In a big block of ice. So, yes, we are focusing on just becoming debt free.

Originally Posted by littleroc02us

A couple of questions. First is where did you learn about the debt snowball idea. Second, is your plan to pay off debts and build an EF at the same time?

I learned about the snowball idea from this forum! I was reading around and a lot of people were talking about it. After googling it, I read that if you pay off your smallest debt first, regardless of interest rate, it's a good way to get started and get finished faster. And yes, I am paying off debts and making an emergency fund at the same time. It may seem redundant, but my husband has no health insurance and his car is a POS. So, emergency fund is a necessity, as is being debt free. I don't have enough in the emergency fund to even pay off one card though.

[littleroc02us]

My only concern is that doing 2 things at once takes longer. You spread your self thin. I would say in your situation to put all of your intensity on building your EF fund up to where it's comfortable meanwhile paying minimum on your debt, when the EF is satisfying conquer all of your debt. I just worry that the healthcare and car will come back and bite you with to small an EF. If you don't have the EF to cover your emergencies then the natural habit for most is to borrow. Wouldn't it be nice to have some cash set aside to cover all problems??

[jpg7n16]

Originally Posted by KiwiJo09

After googling it, I read that if you pay off your smallest debt first, regardless of interest rate, it's a good way to get started and get finished faster.

It is a good way to get started if you're not able to handle yourself around debt, or in some cases if you're in dire need of cashflow.

But it absolutely is not a way to finish paying off your debt faster. Not sure where you read that, but that part is not correct. Highest tax adjusted interest rate to lowest tax adjusted interest rate saves the most time and money.


The point of the snowball is not to pay off faster or save the most interest, but to attempt to gain some extra motivation by the 'reward' of paying off the debt. Seeing those $0 balances is supposed to reward you and encourage you on the path to being debt free. And I agree that can be motivating.

But there are other ways to reward yourself - for instance, a special family night out for every $1000 you lower your total debt. A movie night for each $500 you remove. Nothing fancy, but something that is a reward for you. You don't want to go in debt to reward yourself for getting out of debt! Post your debt balance on the refrigerator and track it as it goes down. Make a list of your starting debt, and the new balance every month - crossing off that old balance and writing the new one. Put up target dates about when you're 1/4 of the way, 1/2 way done, etc.

The snowball method is just one of many motivational techniques.

[muexm]

Originally Posted by littleroc02us

A couple of questions. First is where did you learn about the debt snowball idea. Second, is your plan to pay off debts and build an EF at the same time?

I first heard about the snowball method from Dave Ramsey. The theory works on human psychology; by paying the smaller debts first, the individual, couple, or family sees fewer bills as more individual debts are paid off, thus giving ongoing positive feedback on their progress towards eliminating their debt. In theory, by the time the final debts are reached, the extra amount paid toward the larger debts will grow quickly, similar to a snowball rolling downhill gathering more snow (thus the name).

If you haven't heard of him you should check out his website and/or his book "The Total Money Makeover."

[littleroc02us]

Originally Posted by muexm

I first heard about the snowball method from Dave Ramsey. The theory works on human psychology; by paying the smaller debts first, the individual, couple, or family sees fewer bills as more individual debts are paid off, thus giving ongoing positive feedback on their progress towards eliminating their debt. In theory, by the time the final debts are reached, the extra amount paid toward the larger debts will grow quickly, similar to a snowball rolling downhill gathering more snow (thus the name).

If you haven't heard of him you should check out his website and/or his book "The Total Money Makeover."

If you've seen my posts for the past year or so, I've been following the David Ramsey plan for 6 years, I have all the books, I was just trying to find out where the user heard about it to see where they were coming from.

[Aleta]

I persona;;y like the snowball method for psychological reasons. When we were getting out of debt, one of our lowest debts had a large interest rate and when it was paid off we used that payment for the next one in line. We also found money in our budget plus selling items to bring down the debt faster. I looked at it as one less bill to have to pay. At that time, it was also the stamps, time, etc for each bill that we owed. We saved a minimal amount knowing that if something came up that we could put it on credit. We saved a minimal amount towards our emergency fund but this is also a personal strategy.

[creditcardfree]

Mary Hunt, author of the Debt Proof Living site and many books was the first person I read who suggested a snowball type method. She also has great information about setting up a freedom account for non monthly bills. A freedom account helps you plan and save for those expenses that don't come up every month, such as car insurance, car maintenence. I would highly recommend establishing this type of fund.

[Aleta]

You can find her book in your local library saving you money. You can also get Dave Ramsey's or any other books from the library as well. That way you know if you want to purchase the book for your own library and reference. I have bought used books from various dealers and have been pleased with their condition. Mary Hunt gives you a good basic idea of budgeting future expenses into your budge.

[creditcardfree]

Another one who talks about snowballing, but doesn't call it that is David Bach, author of the Automatic Millionaire. Like Aleta said...check it out at the library or find it used.

[Hector]

I agree with JPG.

Personally I will attach debt with highest interest. It is the fastest way to get out of debt. Its great that you guys have breezed your credit cards, make sure to see the statement and grab the balance transfer offer if you could get lower APR.

Lets say I have two credit cards.
APR for Card A is 29%. Total limit 10k. Balance 7k
APR for Card B is 10%. Total limit 10k. Balance 7k
If Card B is offering me balance transfer offer with existing rate for 3% transaction fees, I will transfer 3k from card A to card B. (Assuming you are paying more than minimum and your balance is decreasing every month).

For the same purpose, I would keep my eye open on new credit card offer in mail as well.

[DebtFree13]

My wife and I currently using the snowball method. Its working great. Went from $47000 to $27000 in less than two years. Just remember not to use the pesky credit cards while you are doing it.

Good Luck.

[maat55]

Originally Posted by KiwiJo09

After reading all your posts about how great the snowball method works, hubby and I decided we were going to do the snowball method on our credit card debt. We are still building our emergency fund and such, but will be paying the minimum on other cards while we pay the smallest off slowly. I appreciate the ideas. And would like to know any other suggestions if you have them.

The snowball(smallest to largest balance) method is meant to be intense. If you plan to go slowly, you would be better off paying the highest interest rates first.

[KiwiJo09]

Originally Posted by maat55

The snowball(smallest to largest balance) method is meant to be intense. If you plan to go slowly, you would be better off paying the highest interest rates first.

Maybe. But I'm still new at this. We'll be putting a good amount of money towards the first card every month, but it's still going to take us about 2 months to pay it off completely. Slowly would be the wrong word, but it feels pretty intense by looking at my payment plan.

[jpg7n16]

Originally Posted by maat55

The snowball(smallest to largest balance) method is meant to be intense. If you plan to go slowly, you would be better off paying the highest interest rates first.

The highest interest rate to lowest interest rate method is also meant to be intense.

You should be snowballing your payments either way.

It's the same amount of money coming out of your account each month, it's just a matter of which debt to pay first.

In the typical snowball, you snowball lowest balance to highest balance. But you can also snowball highest interest to lowest interest. Same principal, when 1st card/debt (highest rate) is paid off, add that payment to the next card/debt (2nd highest rate). Rinse and repeat till debt is gone!

[Aleta]

I think each situation and person is different. If my husband and I had started with our highest debt and interest rate, we would have probably lost heart and patience. We had a couple of smaller debts. One was about $275.00 and the other was a little over $800.00. In order to keep and stay interested, you have to see some kind of progress. We continued paying minimal payments on all of the other debts including the $800. one but added more to the $275.00. Because the $275.00 was smaller, all kinds of ideas that were doable came as to getting rid of the debt. We cut our food bill down by 10%. We lowered our usage of electricity by not leaving lights on, etc. We stopped going out to eat - even at McDonald's. Whatever I didn't use in my monthly gas budget was added to pay off the smaller debt. For that matter, any money leftover from a budgeted amount was added to the the payoff. We didn't go on a vacation. We had a change jar and that was added also. I used coupons. We changed our homeowners insurance. We sold aluminum. My point is that with smaller amounts to pay off - it is easier to find smaller and attainable ways to pay off the debt. We also kept a debt chart and date of payoff. As each debt was paid of, we checked and crossed it out and put the final date paid and the amount of interest saved. Once you start your plan - you'll think of all kinds of ideas to pay off the debt. We also awarded ourselves something of small value. For me, it was a book that I wanted. I wrote on the inside cover that this book was my reward for paying off the first debt. I came across the book about two months ago. It's a reminder of where we were. A reward for you to be to go to a free concert but maybe eat out at an inexpensive restaurant. Rewards are important.

[AtoZ]

As others have said - it works, just stay away from the cards in the process. Best of luck.

[couchrobt]

Originally Posted by bjl584

Sounds like you have a good plan. My only advice would be to make sure that you don't continue to use your cards or to rack up debt in other areas (car loans, etc.) Just stay focused on the goal of becoming debt free.

True this, true this. On the way to being debt-free, temptation to use cards (since you are paying off anyhow) will be very strong especially when you are feeling the tightness. Also, I have heard of the Snowball Method too. Would be nice to know more about it though. Hope more stuff be thrown in this thread. I find it interesting.