After having my husband’s car die a horrible death a couple of weeks ago and having to buy another one (because my husband is/was positive this car could not be fixed for less than it would cost to buy another car) it occurred to me that I might just be going about my debt snowball all wrong.

First, let me say that we replaced the dead car with a more expensive car, at $8,990 plus tax, title, etc. The loan ended up at $10,589. However, we got a 2008 automobile that still has warranty, and we’ve agreed that our goal is to make this car last 10 years, so we can get it paid off in 5 years (if it takes that long, and it might) and have 5 more years to save for another car.

Several things about this purchase bothered me though, and the main one was my husband’s inability to separate out the fact that affording payments does not mean you can afford the loan.

The thing is, when you have a spouse who believes you’re able to afford something just because you can make the payment, you really have to watch out when you start paying off debt.

As one payment falls to the debt snowball, I worry that my husband will want to buy something else to take its place. (History shows a track record for this and I’m not one to argue with history.)

I’m sure I’m not the only person trying to deal with a somewhat uncooperative spouse who just doesn’t seem to get it.

I’ve discovered that there might be a way around the fighting and worrying. It’s less like a row of falling dominoes and more like the collapse of a house of cards, but it just might work.

Don’t pay off your smallest debt first. Pay off the debt with the longest term first (with the possible exception of your home loan, depending on how much benefit you see from the tax-deductible interest).

By choosing to pay off the debt with the longest term, you eliminate the worry that freed up cash will be diverted from your debt snowball and used to make another payment for something your spouse wants to buy.

Without true cooperation from your spouse, it’s unlikely you’ll ever be truly debt free, but that doesn’t mean you can’t try. I certainly intend to do my best at it!

In the future, I will be able to spend less time worrying about what will happen when we get some of our debts paid off and we have cash available to make bigger extra payments.

Until now, my strategy has been to pay off some relatively short-term debts that should be paid off within the next year or so. However, I’m already hearing rumblings from my husband about that boat he wants to upgrade to—and how wonderful it would be if we had just a little extra money so he could make the payments.

Since I have no intention of letting this happen (if he really wants it, he’ll have to find a way to start saving for it!), I have begun to rethink my debt payoff strategy.

My camper has a higher interest rate than many of my other debts and a relatively low payment (about 1.1% of the principal). I intend to start putting any extra payments I can make toward it, instead of the other shorter-term, higher payment credit card (about 2% of the balance).

This way, I stop the “we have enough for a new payment” problem before it even becomes a problem.

Unlike with a traditional debt snowball, where you use freed up cash to pay extra on other debts in a rollover fashion, where your debts begin to fall like dominoes, this method will pay off your debts with the shortest terms on their regular schedule. This means that you’ll see more debts fall at about the same time.

Basically, I can put off the obvious freeing up of cash by saving on future interest, reducing the term of the debt by paying more principal each month, and having several debts paid off at around the same time frame. Paying extra on the camper loan should allow me to knock down 4 loans at about the same time.

I also believe this will give my husband the encouragement to save that he needs when we finally have free cash, because he will be able to “see” how possible it will be to save for a large purchase when we have so much cash freed up.

That’s the plan, anyway.

This might reduce the motivational boost I would get from paying off smaller debts faster, but it just might get me significantly closer to my goal of paying off as much debt as possible without having to worry about my husband eyeing the extra cash!

Why aren’t interest rates and amounts owed the most important factors?

First, interest rates and amounts owed do exclusively determine the amount of money you’ll ultimately be paying back. Time is a factor, but not in the same sense that interest rates and money owed are.

If you want to payoff your debt in a way that saves you the most money over the long term, based on your current situation, you need to choose to pay off your debts with the highest interest rates first. A higher interest rate means you pay back more dollar for dollar on a debt. If you owe $1,000 at a 10% interest rate, your monthly interest payment (using simple interest) is about $8.33. If you owe $1,000 at an 18% interest rate, your monthly interest payment is about $15. This is a simple way to decide what comes first in your debt payoff.

If you’re more interested in the motivational aspects of paying off debts quickly, you can start with the smaller amounts first and work your way up to the larger debts. This gives you a boost every time you pay something off, inspiring you to keep at it.

However, sometimes other issues come into play when you start working on your debt payoff plan. In fact, you should always consider other factors in your decision-making.

My problem

I have several smaller debts with low interest rates. I also have a few with larger balances that have higher interest rates.

My ideal plan would have been to pay off debt in a way that saves me the most money. I like money and I especially like it when I can keep as much of it as possible in my pockets.

My debts

The thing is, I would like to pay off the camper before the American Express bill because the interest rate is so much more favorable. However, with the current state of the economy and the ever-changing nature of credit card agreements, I worry that my American Express credit card terms will change drastically and unexpectedly and I’ll lose that lovely 3.99% interest rate until the balance is paid off. Then, depending on how high the rate jumps, any savings I could have accumulated by paying on the 8% debt first would be lost in a matter of months.

I have friends who are dealing with unscrupulous credit card companies right now and I have little faith in them myself these days. My biggest fear is that before the new credit card agreement rules go into effect later in the year, many credit card companies might try to take advantage of as many loopholes in the credit card agreements as possible to keep from having customers locked in with very favorable terms long-term.

Maybe I’m overly cynical, but I don’t think so. Do you?

All the reasons I mention above are reasons in favor of taking your entire financial picture into account when you start laying out your debt repayment plan or your debt snowball.

Arrange your payoffs to suit you and your needs and don’t worry so much about following any particular person’s specific method for deciding on a debt payoff order. As long as you’re paying something down with the intention of paying it off, you’re making progress!

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

1. JCPenney (couch) – 0% interest, but raises dramatically if the debt goes past a certain date
2. Auto Loan – 6.9%
3. Camper – 8.25%
4. American Express – 3.9%
5. 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.