Happy Friday Ya’ll! So the next step to go over in the Friday Finance Series is Step #2. This is the biggest step of all, the reason for your whole journey, and just be prepared it will probably be the longest! There are several different theories and methods to this step, my philosophy tends to stick pretty close to the Dave Ramsey method of using the Debt Snowball. So let’s get started!
First off you need to get your debt snowball plan laid out. In order to do this you list all of your debts out starting with the lowest balance; yes balance NOT interest rate! I know a lot of people think that doesn’t make sense but I can promise it does and it works. I also list out with mine what the minimum payment on each debt is.Now that you’ve done that let’s tackle the debt! You want to be paying the minimum payment on all of your debts not only because you made a promise to pay them but also because you want to keep yourself from incurring additional debt by getting late fees, etc. While you are paying those minimums each month though you are going to focus on the smallest debt.
So let’s say your smallest debt is a credit card balance of $200 with a minimum payment of $25. As I said pay all of your other minimum payments, including that credit card BUT anything extra you get that month, whether it be an extra $5 or an extra $50, pay it towards that smallest debt also. Let me give you an example of how that looks for me. Often times my husband gets additional bonus checks throughout the month for meeting some sort of goal. It could be a check for $25, $50 or $75 it all just depends on what the goal was. When he brings home these checks I deposit it then immediately go make that exact amount as an additional payment on whatever our current smallest debt is. Another method would be trying to come in under budget in a certain category for the month. Let’s say your grocery budget is $500 a month but you are able to make smart shopping choices and only spend $425 this month. Well than you guessed it, that other $75 you planned for, goes towards your smallest debt. You will be amazed how fast you can start knocking debt out by doing this!
Now to get your snowball rolling. Once you have paid off that credit card with the $200 balance it’s time to tackle the next one on the list. Let’s just say it’s another credit card and the balance is $350. You’ve been paying the minimum payment of $30 on it every month, now you are going to add to that. Instead of just wasting the $25 that you were paying on the previous credit card, you are going to add that to your new credit card, making your monthly payment amount $55. Make sense? While doing this you are going to still stick with the other tip I gave you which is to throw anything extra you have at that debt as well. You are going to get into a routine of doing this with each debt, and each time you pay something off you just roll that minimum payment amount in to the next one hence the snowball gets larger and larger each month. As your minimum payment snowball grows you will be paying off more debt and at a faster pace.
When you are first starting out this task can seem so daunting, like how are you ever going to pay all this stuff off. That’s why this method works though, by starting with the smallest debt you have a smaller goal, just pay off that one thing. Believe me when I say you will feel SO accomplished once you do. Also, as you see your progress it will give you more encouragement to keep going. For so many years I thought we’d always have debt and always live paycheck to paycheck. In our year’s journey so far we have paid off 10 of our debts completely!! Each time I pay one off I gain steam for the next one and get more and more encouraged.
Now this is where I feel like I need to put a disclaimer. For anyone who knows me (like for real, not just what you think you know) you know that David and I love to eat out. More specifically we love going to breweries, and if you want to get real specific, we love Three Notch’d Brewing Company in Charlottesville. There is no doubt about we spend a lot of money in this area. I know that we could be knocking out this debt a lot faster if we cut that out or even back some. Everyone’s journey is their own and you have to define yours. The reason our journey is working is because we budget well. In our budget I account for everything, literally, and David can tell you if he messes it up I get upset! That being said I budget each month for what we are going to spend eating out. If we are going to go over it then we adjust the budget and pull it from another category where we have room or we just suck it up and stay home! Because we have our fun built into our budget we do not feel like we sacrificing a ton and that is why it works.
Now mind you we do make sacrifices in certain areas for the sake of paying off the debt but not in this category and it’s simply because that is something we love to do together and it’s important in our marriage. There were many, many years where we didn’t have that option. We barely survived paycheck to paycheck and paying the things that had to be paid. Fun time as a couple was not an option. Now we are in a position where we can pay all the bills, work on the debt and still have fun so you can bet your behind we are going to do it! Life is too short to not enjoy but there is a smart financial way to do that. We have defined our way and we are having great success with is, which is one reason I enjoy sharing it, because I know it works.
Like I said in the beginning this will be hard and probably the longest step but it will be so worth it in the long run and when you are done with it you will be so proud of yourself! As always if you have any questions or want any help with this step please reach out to me. Everyone’s scenario is different and adjustments have to be made but it can still be done. My biggest reason for sharing is that I want people like us to know there is another way to live life. The people who just believe the paycheck to paycheck cycle is always going to be their life and they are always going to struggle. We are proof that this works, that it can be done and that you can build a better financial life for yourself without being a millionaire. Have a great weekend everyone!
~Carla~
Arise and Glow 