Finances 101: Get the (Snow)ball Rolling!

Hello Readers!  If you’ve read any of my previous posts, you will recall that I am a HUGE supporter of Dave Ramsey and his Financial Peace program!  I will always support his program because I know it works!  I am currently in it, chipping away at my student loans (my only debt at this time).  I have paid off about $15,000 of credit card debt and have been working on my student loan debt for over two years.  The $15,000 that I paid off was done before I got married, before my husband move in (after our wedding), and when I was making roughly $35,000 a year.  How did I manage that?  I did it with the Dave Ramsey plan.

The Dave Ramsey plan is easy, once you understand debt and its effect on your life.  Once you understand that debt-credit cards, car loans, and even mortgages-don’t have to be the norm, once you actually ask yourself why you make those payments and what your end game truly is, you begin to understand how a debt free lifestyle is possible.  Imagine being 50 years old with a mortgage-free house, a clean car title in your name, and a set retirement fund that allows you freedom.  How fantastic would it be to retire at 50 with a fully-funded IRA or 401k, no mortgage payments, no car payments, no debt, and nothing to worry about but what to do today?  It is possible to get there, even if you’re 30.  Heck, I’m 33 now and I’m not quite there.  But I’m on my way, and I might not be there until I’m 60.  But it is our future plan, and it’s what my husband and I are working toward right now.

So, let me get started by telling you a little more about our lives.  Yes, we live in an apartment right now.  We have discussed the possibility of buying a home soon, particularly because we have recently learned that our potential mortgage payments (with added housing expenses that are currently included in our rent) could be less than what we currently pay per month for our rent.  And, we would like the opportunity to pay off more and work on owning our own home.  We also have reasonable expectations for a house, and we understand that a starter home or one step up is our ideal situation.

Now, why are we thinking of taking on more debt right now?  Because it could mean adding an additional $250-500 to our monthly payments to my student loans, thus paying them off quickly.  And those payments could then roll into our mortgage payments to pay that off quickly.  And we could potentially be debt free in just over ten years, including a mortgage free house.  That could mean that we could pay outright for our kid(s) to attend college, and we wouldn’t have to worry about them taking out loans like I did.  We could afford to retire at 60.

So, how does it work?  It’s really easy.  When you decide to do the debt snowball, you have to commit to one important rule in the very beginning: you will not accrue any more debt.  This is primarily your smaller debts, such as a car payment or credit card debt.  For example, on the day that I decided to begin the debt snowball, I wrote down the information for my credit card companies (the account numbers, the phone numbers, etc.) in my “debt snowball” journal, and I cut up my cards.  It was surreal and a little scary.  I mean, we have been taught to have an “emergency card” for emergencies, right?  But the truth is that I hadn’t used my emergency card in years; I couldn’t.  It was maxxed out, and I spent every penny I could paying the minimum balance while spending my paychecks on clothes and Starbucks.  It was sad.  It was pathetic.  I wasted my paychecks away on garbage, barely made my minimum payments, and that didn’t even include my student loans.

Things changed then.  I was disgusted with myself; I was irresponsible with my money, and I vowed that things would change.  What I did first was cut back on the spending.  It didn’t happen overnight; I still splurged on Starbucks.  But I did it once a week or two instead of once or twice per day.  I stopped going shopping when I was bored and started writing again (I had stopped for a couple of years after grad school).  I still made minimum payments on my cards but only until I established an emergency fund of $1,000.  And then the debt snowball began.

My Capital One card was first.  It was maxxed out at $2,700.  It was my first credit card, my “emergencies” card.  My payments were $50 minimum.  I paid $100, then I found a way to pay $250, and then $500 until it was paid off.  I got lucky that my car payments ended about six months after I started my debt snowball, which accounted for the $250 per month at the end of paying this card off.  Once it was paid off, I called Capital One and closed the account.

The next card was my Chase Credit Card, maxxed out at $4,000.  The minimum payment was $100.  Once the Capital One card was paid off, I added another $500 per month to my payments, for a total of $600 a month.  It took less time to pay this card off, or so it felt.  I stopped going to Starbucks, I think, which added another $50 to my monthly payments, and I got frugal about my clothes (adding another $600 a year in savings).  Again, once this card was paid off, I called Chase Bank and closed the account.

My final card was my Wells Fargo Credit Card.  This one was a doozy.  It felt like it took forever to pay off, and it nearly did.  Right in the middle of my payments, my student loans got tangled into a huge mess that took years to sort out and get on track.  Somewhere along the way, I managed to pay off this card and close the account.  The payments were less as my student loan payments jumped up and I had already used up all deferments and holds on my payments.  Even now, I can’t qualify for a deferment based on income-contingency, on single income, on pregnancy, on job loss.  I have no other option but to pay.

Regardless, my debt snowball and the Dave Ramsey Financial Peace plan certainly helped.  I was fortunate that when the student loan deferments stopped and I was forced to pay, thus being added to my budget, I had gotten “Gazelle Intensity” about my finances and had paid off enough that the student loans became more of an annoyance rather than a crisis.  It annoyed me that I hadn’t gotten rid of the credit card debt before the student loan debt took over, but I was used to paying my debt off.  I hadn’t accrued any more debt.  And I was pouring so much into my Wells Fargo Card that lowering my payments from nearly $1,000 back down to $500 didn’t get me in trouble.  By that time, my minimum payments were $100 and manageable.

And now, even with my husband in the mix, we only have the student loan to pay off.  All of them were consolidated a couple of years ago, which means I have one provider.  And while that added to the overall total (transfer fees, interest, etc.) it did buy me a little time to consolidate.  And that’s it.

So, tell me Readers, have you attempted the debt snowball?  What has been your experience with it or with Dave Ramsey’s Financial Peace program?  I would love to hear from you!

Until next time,

-BBM

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