Snowball and Saving at same time?

[heyaim]

I'm starting our debt snowball this month. We have 2 loans...one is $13,000 at 2.9%...the other is $16,000 at 4.9%. I'm planning on adding $300 month til they are both paid off...for now.

Anyway, what is your opinion on still adding to our personal savings account while paying off debt early? We currently have enough to cover 3 months of bills. I have $200 more to save for our Christmas fund for this year, so that will be complete in a month. Our vacation money for this December is complete.

I think we should save the full 6 months of bills in case anything ever happened. Then really start tackling the debt.

[bjl584]

That depends on your specific situation. How stable is your job? Is 3 months expenses enough to cover your expense needs should you become unable to work? Would you be eligible for unemployment?

[disneysteve]

It really depends on your goal. If you want to get out of debt as quickly as possible, your plan won't accomplish that.

Dave Ramsey really popularized the "debt snowball" and his system (which I don't agree with necessarily) is to save a $1,000 starter emergency fund and then put every spare penny toward the debt until it is gone. So he would have you spend down your savings to $1,000 and attack the debt. He'd also cut out luxury stuff like vacations and Christmas presents.

From a strictly dollars and cents standpoint, it doesn't make much sense to put money into savings earning perhaps 0.8% while continuing to carry debt that is costing you 4.9%. I'd freeze the savings where they are and attack the debt.

I'd also be taking a hard look at spending, especially luxury spending. Can you do a more modest Christmas? Can you take a more budget-minded vacation? Are there everyday expenditures that could be trimmed or eliminated until the debt is gone? It all depends on how aggressive you want to be.

[debtupset]

I second the question, how stable is your job situation? If it is stable, and you really want to pay off debt, stay with your current savings level which is a really good amount. You'll get rid of that debt faster.

Is 300 all you have to put toward the debt or that is what you're deciding to put toward it while there is still other money available? For example, if you have 800 available every month, you could get rid of one of those loans more than twice as fast as you can now at only 300.

[heyaim]

Yes our jobs are stable. If either one of us would lose our job, we would be eligible for unemployment (as long as we were laid off and not fired). When I say we have 3 months worth of bills in savings, that is based on 3 months of bills...as if we had no income coming in.

Yeah, not sure I agree with Dave Ramsey on the whole $1000 in savings! I'd be a nervous wreck! One car accident can eat that up in a blink of an eye! I can't remember ever having less than $1000 in the bank...not even in high school! Some of Dave Ramsey's ideas are good and some are insane!

19 years ago I did the debt snowball towards doctor bills for our daughter. I don't remember the total or how long it took me, but there was a lot! I'd say about 12+ different bills. It worked great! I'm ready to do this again.

Give up vacation? Oh my! Not sure I'm ready to take that leap yet! We are spending a week in December at my parents vacation condo in Florida (a pretty cheap vacation considering we only pay airfare and food). This is our first getaway with no kids... ever!!! That's after 20 years of marriage!

OK, I'm going to put the savings and vacation funds towards the smallest loan! That will be $500 month extra! I don't know that I can quit living to tackle this. I can cut back and make some changes.

Thanks for your input/thoughts/ideas!

[disneysteve]

Just to be clear, I wasn't suggesting you follow Ramsey's plan. I wouldn't. I was just stating that it is a commonly heard view.

Personally, I'd keep the 3 month EF for now. I think that is a comfortable enough cushion.

I would focus on the higher interest loan first, not the smaller balance.

I wouldn't give up vacation but I would be sure to be doing it frugally.

I do wonder what type of debt this is.

[heyaim]

Our $13k is a car loan, our $16k is a camper we keep on a permanent site. I know a lot of people will not agree, and that's fine.

I do think I will keep the savings as is. So far the minimum I can add $400 to pay these items down. Hubby's pay varies weekly, so that amount can increase...usually does. I'm still undecided which loan to pay off first. The 13k could be paid off faster, but the 16k would save more money on interest even though it would take longer. Hubby and I need to sit down and decide.

[bjl584]

Our $13k is a car loan, our $16k is a camper we keep on a permanent site. I know a lot of people will not agree, and that's fine.

I do think I will keep the savings as is. So far the minimum I can add $400 to pay these items down. Hubby's pay varies weekly, so that amount can increase...usually does. I'm still undecided which loan to pay off first. The 13k could be paid off faster, but the 16k would save more money on interest even though it would take longer. Hubby and I need to sit down and decide.

I'd pay off the camper. Actually, I would probably sell the camper, but I have a feeling that you aren't going to. The Camper has a higher interest rate and it will depreciate a lot faster than the car. Get it paid off first.

[snafu]

It can be fun to challenge yourself to make dozens of small cuts to current spending that seems inconsequential on their own but add up over time. Those bits help reduce the months required to clear the debt of diminishing value purchases. For example, how much is your bank/financial institution charging you for services? Do you use Gas Buddy on-line tracker and plan driving for most efficient routes and managing errands to reduce operating costs?