A debt snowball for the winter months
Winter will be here only a few months before I have one of my first debts paid off. I’ve been working toward paying off a JCPenney bill.
Back in the spring, I bought a couch. I’d like to claim I paid cash for it, but I can’t. I needed a couch quickly and I took the easy way out. I bought the couch on credit.
I did have sense enough to find a store running a “no interest until June 2009″ deal, so I haven’t paid any interest on the couch. However, the special “no payments” part of the deal almost caught me… I put off starting my monthly payments when I should have, and I’ve ended up having to pay higher monthly amounts to get me to paid off before the “no interest, no payments” period runs out.
I’ll make it in just under the wire. I owe $409.13 and have been paying regularly these days. My hope is to have a little extra left over from Christmas bonuses to pay it down faster (if I even get one with all the financial crises going on right now).
My plan is to take that $50 monthly amount I’m paying and put it toward my car payment. This will effectively start my debt snowball.
Technically, spring is probably when my debt payments are first going to snowball, but I’m thinking of it as having already started. I’ve packing my snowball and I’m getting ready to let it loose down the hill. As soon as that first payment is applied to something else, it will have officially begun to pick up speed.
I have my list of debts, in the order I want to pay them off.
Although many experts suggest either paying off higher interest debts first or debts with the lowest payments, I’ve come up with my own schedule, for my own reasons. For this to be successful, that’s what we all have to do—find something that works for each of us, giving us the most motivation. If you find that you’re more motivated by the thought of saving money you would have ended up paying as interest, by all means, you would want to list your debts in order of highest interest rate to lowest.
My choice of debt payoff order
- JCPenney (couch) – 0% interest, but raises dramatically if the debt goes past a certain date
- Auto Loan – 6.9%
- Camper – 8.25%
- American Express – 3.9%
- Student Loan – 3.25%
I chose this schedule because it will get the snowball going the fastest. I already feel tons of motivation at the idea of paying off my car and knowing that payment amount will go toward paying off the camper. It’s exciting to dream about the day when I can actually make it happen.
Do you have a debt payoff schedule? How did you chose to rank your debts? I would love to know.
May 17th, 2009 at 12:08 am
I developed my debt payoff schedule in 2007 and it is based on the teachings of Dave Ramsey. I have chosen to list my debts beginning with the smallest balance and ending with the highest balance.
I know that this may or may not minimize the total amout of money I pay out, but it is a plan that has work so far. I agree with you that the most important thing is to have some type of plan regardless of how the schedule is determined.
My debt schedule:
1. Discover: $ 1,086 (paid off 08/15/07)
2. HSBC: $ 3,380 (paid off 08/31/07)
3. Mastercard: $ 3,727 (paid off 10/31/07)
4. Mastercard: $ 9,574 (paid off 03/17/08)
5. Car Loan: $29,790 (down to $14,500)
6. Student Loans: $54,180
May 17th, 2009 at 9:14 am
The thing I’ve always thought was smart about the Dave Ramsey plan is that it allows you to build up lots of momentum. By the time you get to the larger debts, you’ve already built up a big snowball of money to throw at them and you get to see progress much more quickly than you would otherwise, keeping your motivation and determination high. (Dave Ramsey’s plan is in his book The Total Money Makeover: A Proven Plan for Financial Fitness
and others he’s written. He also has some free resources on his website.