Day 7 : Snowball Your Payments
It’s no secret that I’m a big fan of Dave Ramsey’s work. More than four years ago, I was surfing the Internet and I stumbled upon his Internet radio program and I was instantly ‘hooked’. After a year or so of listening, I dared to put his plan into action, and less than 10 months later, I was debt free. Dave suggests paying off your debts, starting with the account with the lowest balance. Other personal finance writers suggest paying off your debts, starting with the account with the highest interest rate. But, almost all agree that it’s not enough to begin with a specific account, but once an account is paid off, you must begin to SNOWBALL YOUR PAYMENTS.
Let me illustrate:
For the first 4 months, you will be making an extra payment to Account A, while making minimum payments to all accounts.
After paying off Account A, you will take the TOTAL amount that you had been sending to Account A (Extra Payment plus Minimum Payment) and you will send that TOTAL amount to Account B. You will be “snowballing” your payments.
Instead of treating each account as individual accounts, you will treat your TOTAL DEBT as a “single debt”. So, once you’ve paid off one debt, you will use all available money to pay of the second, and then the third, and then so on and so on.
The power of the snowball becomes obvious. At first, you are only sending in a few “extra” dollars. Soon, you’ll be sending in “double payments” or “triple payments”. Over time, it really does add up.
Have you used the debt snowball?. Leave a comment and let us know. If you are a blogger, write a post about using a debt snowball and contact me. I’ll be more than happy to link to your post.Click here to read all of the 33 Days And 33 Ways To Save Money And Reduce Debt posts