Let A Snowball Get You Out Of Debt

If you’re anything like me, plugging away at debt and not seeing any results can be very frustrating. Not only does my debt not seem to go down, but my savings are not going up, either. It’s almost like a black hole is sucking away all my money without any trace of its existence. Now anyone who knows me personally will know that it’s not because I spend money on silly things. Sometimes to get me to spend money on anything is like pulling teeth. This makes it more frustrating, because if I wanted my money to just disappear I might as well have a 56-inch LCD flatscreen TV to show for it, right? Wrong. What I needed was a different approach to debt elimination and money saving. That’s where the snowball comes in. Dave Ramsey’s snowball. Now, I’ll be honest, I’ve only recently learned this snowball approach, but luckily it has been something I’ve been following on my own for the last 6 months.

I’m not going to list all of Dave’s seven baby steps to a money makeover. I’m just going to list the ones that have gotten me on the right track. To learn more about Dave Ramsey and these baby steps, visit these two sites:

Dave Ramsey – The Seven Baby Steps
Success Magazine – Interview with Dave Ramsey

Below I have taken a couple of the steps that have resonated the most with me and have broken them out a little more:

1) Start saving – build up a savings of at least $1,000 that you will only touch for emergency situations. This is something that was really bothering me, because without this I felt very vulnerable to personal economic downturns or unexpected expenses. Having these savings lets me breathe easier at night.

2) Ignore your mortgage / home debt for now. This is big. Especially for the young folks just starting out who have student loans, credit card debt, lines of credit, and a huge mortgage to boot. So, make sure you’re paying your mortgage or saving for your first down payment on a home, but don’t stress about paying your home off too much right now.

3) List all of your other debts from smallest to largest (ignore interest). Mr. Ramsey recognizes that this goes against suggestions to pay off your highest interest debts first, but he has a reason for it.

4) Attack your smallest debt until it’s gone. This is where the snowball really gets rolling. Make sure you are paying all your minimum payments, but aggressively go after your smallest debt until you can wipe it off the books completely.

5) Celebrate your accomplishment. You just paid off that debt that has been hanging over you and taking a portion of your income every month. Now that money is free. Nice work!

6) Re-evaluate and attack the next smallest debt. Get the snowball really rolling.

7) Finish the emergency fund. Once all of your debts (except your mortgage) are paid off, you should have 3 to 6 months of expenses saved up somewhere where you will not be tempted to touch it.

I’ve actually only covered three of Dave’s seven steps. To see the rest of the list please visit the links above. This approach has helped hundreds of people get out of debt. Now let it help you.

Love or hate the snowball? What’s your feedback?