Steadfast FinancesCreating and Maintaining a Debt Snowball

A Snowball’s Chance in … America: Creating and Maintaining a Debt Snowball

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America is the “Land of Opportunity.” Everyone has a chance to go to school, get a paying job, earn enough to buy the house with the while picket fence, and retire when they are 60. Unfortunately, America is also the “Land of Crippling Debt.” As of 2010, the amount of consumer debt in the United States was approaching $2.4 TRILLION, which, when broken down, amounts to $7,800 for every single person living in the US. Consider this; these numbers were high in 2010, how high do you think they are now? The US economy is taking a nose dive and every man, woman, and child in this country is feeling the debt effects–but there’s hope.

What does Debt Look Like?

Almost everyone knows what prosperity looks like–the flashy cars, the large houses, the designer wardrobe, the spontaneous trips to Bali, and the ability to live as one wishes without fear of going broke. Some Americans know what living comfortably looks like–mortgage paid on time every month, twice yearly vacations, no real worries about paying the bills, and having that satisfaction of not owing more than they make. So, what does debt look like?

Debt is the ugly cousin to prosperity and comfortable living that no one likes to talk about. Too many people in the United States know every wrinkle and mole on the face of debt. Debt is living pay check to pay check, putting off buying medications to buy groceries, living in fear of the power being shut off, hiding the piles of shut off notices and foreclosure notices that come in the mail, desperately trying to find the light at the end of the long tunnel, dodging phone calls from credit card companies, the depression, the hopelessness, the anger, the fear…debt is truly one of the ugliest faces in America.

Is Debt-free Living Possible?

Despite the fact that so many of us live in debt, there is such a thing a debt-free living. How is that possible? Well, for those who’ve never been in debt, it’s pretty easy, but for those who’ve been mired in debt for years there are a few things to consider when trying to erase debt from your lives.

What is a Debt Snowball?

If you’ve ever heard the name Dave Ramsey, then you are probably familiar with the concept of the Debt Snowball. The Debt Snowball is much like a real snowball in that is starts off small, and on its way downhill, it gathers more and more snow until it is a giant ball of ice and snow (money and charge-offs) that can demolish anything in its path, which in this instance is debt.

How to Get the Ball Rolling

If you really want to live debt-free, there are a few sacrifices that need to be made. In order to get the ball rolling, you need to set aside a certain amount of money per month to put towards your debt. Where will this money come from, you ask? Well, that iced coffee you buy once or twice a week, those few extra cable channels, or that $10 lotto ticket you buy once a month can actually add up to a pretty good sum of money. It might not be $100, but even $30 a month consistently put towards your debt will start the snowball rolling–albeit slowly at first, but at least it isn’t stuck at the top of the hill.

Now that you have that handful of snow ($30 or so) you need to sit down, gather your unpaid bills around you and list each balance from smallest to largest and then from largest interest rate to smallest. At this point you need to find the debt that is the smallest amount but has the highest interest rate. Once you’ve got this list together, you put that extra $30 in an envelope and mail it to the debt collector. Easy, right? Keep in mind that this $30 should be EXTRA money you’re putting towards this debt, so keep paying what you’ve been paying and just add the extra $30 you’ve scrounged up to the total paid per month.

Eventually, that smallest debt with the highest interest rate will be paid off, and you’ll get that “balance paid in full” notice in the mail, and you’ll rejoice. Now, it’s time to take ALL of the money you were paying to that smallest debt and put it towards the next debt in line. Now, you have an extra (let’s say you were paying $25 on top of the extra $30 to your last debt) $55 to put towards your next bill. Once that debt bill has been paid off, you now have all of the money you were paying to that bill to put as EXTRA towards the next debt bill on the list.

Do you see how the ball is getting larger after each debt is paid off, and you aren’t paying anything more than you were in the beginning?

How to Keep the Ball Rolling

To keep the Debt Snowball rolling all you have to do is keep the money meant for your debt each month going towards your debt. Once you get to the larger debt bills, the ball will start to roll slower, but you’ll be paying A LOT more money towards your debt than you were before. Eventually, you’ll get that last and final “balance paid in full” notice in the mail, and you can finally declare yourself DEBT FREE!

Have you ever tried this method or are you trying it now? Tell us about it!

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Posted by CJ   @   26 November 2012 0 comments
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