Credit and Debt – Page 2

Have you ever wondered what it would be like not to have a single debt payment? That sounds nice, right? But maybe you're so overwhelmed that you feel like you're drowning... You don't know where to start. Don't worry. Every great chess player was once a beginner... (At the end, download the free spreadsheet!) Overwhelmed with Consumer Debt I remember how I used to feel when the credit card statements would come in the mail. The payments were small enough, but the balances felt like a huge weight on my shoulders. How was I ever going to get out from under this mess I created for myself? Even though I was going through a stressful period, I knew I needed to get a handle on my consumer debt situation. After each of our divorces, my new wife and I read The Total Money Makeover by Dave Ramsey. Her ex had straddled her with debt, too. The stories that Dave relates in the book gave me hope. We read about people just like us who learned how to win with money. We knew we could do this. But it was going to be hard work. 'No discipline seems pleasant at the time, but painful. Later on, however, it produces a harvest of righteousness and peace for those who have been trained by it.' Hebrews 12:11 Share on X The Debt Snowball After selling some stuff, we put $1000 into a money market for a starter emergency fund. Then I created a spreadsheet to keep track of our Debt Snowball. This was the key to making headway. Seeing it on screen with formulas demonstrated proof of concept. And copying the formulas and payments down the page, we knew when we would be debt-free. There was now light at the end of the tunnel. To start the Debt Snowball, I listed all our consumer debts in order from lowest to highest across the columns of a spreadsheet. In the budget, we found we had about $1200 per month to spare apply to consumer debts. We made a minimum payment on all but the smallest debt. We put as much as we had remaining after "cash flow" items onto the smallest debt. Starting with the smallest $600 debt first, we got a quick win. This provided a huge psychological boost. The money from the smallest debt got rolled over to the next smallest, and so on. In 63 months (from July 2009 to October 2014), we paid off $61,269.21 in consumer debt. It was probably more, but July 2009 was when we started tracking our progress. In retrospect, we could have done it much faster. At first -- as a college finance major -- I was inclined to go after the highest interest first. However, all the interest rates were high, from 16.49% to 23.99%. So starting with the smallest debt was really immaterial. Yes, the highest interest first is mathematically more expedient. But if we were so good at math, we would not have been using credit cards to buy things I couldn't afford. Click here to download a basic debt snowball spreadsheet to get you started. Study the color-coordinated pieces for further explanation. As you get started, you may need to insert/delete more columns. Add more rows as your debt snowball marches on. Happy snowballing!

Mark Noldy

Category: Credit and Debt