the debt snow ball

Debt is always fascinating subject because is affects everyone and every one has an opinion on it. Things like student loans, mortgage and loans are considered your debt this is because they build up credit and can have tax benefits to them. However, credit card debt and other loans are bad debt because if you only pay the minimum balance you never pay them off. I was about 10,000 dollars in debt at the beginning of 2008. This really drove me crazy and I wanted to do something about this. At this point in time having any debt to me is a bad thing and it should be paid of as fast as possible.

How my wife and I started to pay down debt and be debt free (outside of a car loan) was to sit down and look over our expenditures. The program helped out a lot to show where our money was going. You can link all your various account to and it show were you are spending your money. To break it down, we were spending more then we were making on eating out and other such luxuries that were pushing us deeper into debt. Once we analyzed our spending we started to point out what we shouldn’t do any more and what our necessities were.

Our necessities are: rent, gas, utilities, food and a little bit for fun. This together broke down to be about 3000 dollars and I earned about 3500 a month. This extra 500 would be used for some savings and to pay into our debt. We would line up our debt from smallest to largest and we would pay off each one at a time. This is known as the snowball effect.

David Ramsey is famous for this tactic, but it is not original. My Wife and I would pay one additional 300 on top of our minimum for our smallest credit card which had 4000 dollar balance on it. Lastly we went to a cash budget. Dearest Wife (DW) would get 800 for groceries and other stuff and I would 60 for fun money. It is amazing how much more of an impact it has when you are physically spending dollars versus swiping a card. You learn very quickly how much you are actually spending when you run out of your paper dollars within a couple of week.

We used this tactic to start paying down our debt and about 3 ½ years later we were debt free. We are putting money away and saving up for a house or a trip to Disney land ;). This paying of the debt has given me great self assurances that if I can do it so can you. It does require a sacrifice and some mental resilience, but when you look at your positive bank account you will feel happy and liberated.


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