The Power of the Snowball – Part 3

Photo: marklarson

Is anyone else as excited as I am about the Debt Snowball process?

In Part 1, I talked about how Dave Ramsey’s Debt Snowball approach works. Then, in Part 2, I shared how to get the ball rolling and how you can benefit from it. I’ll wrap up this series today with tips on how to save extra money to build the initial momentum.

Finding an extra $500 a month isn’t easy, but finding an extra $5 here and $20 there is quite do-able. Rather than trying to come up with a large sum at the end of the month, break it down into manageable amounts. For us, one way we save a great deal is on our monthly food expenditures:

• Packing Lunches – Taking the extra time to shop for and prepare lunches in advance saves us the $5 - $10 we each would spend daily buying lunch during the week.


• Homemade Dinners – Rather than eating out a few times a week, we save money by stocking the fridge and freezer with healthy and convenient meals. Having options on hand really cuts down on our desire to eat out. When we have a craving for a restaurant burger ($10 each + tip), we fire up the grill and prepare burgers from the side of beef in our chest freezer ($1 each).


• Family Outings – Whether we are headed to the zoo, the state fair, or on a road trip, rather than forking over cash for unhealthy meals on the go, we try to pack a small cooler with sandwiches, carrot sticks, fruit, and juice boxes.

Other ways to save money include comparison shopping to find the best deal on items and shopping around for the best rates on services. Always shop with a purpose, not for entertainment, and think about the value you will get out of each purchase, rather than impulse buying.

For a small amount of sacrifice, you can make substantial progress towards completing your debt snowball.

Your Turn: Have you been working on your debt snowball? What advice do you have for others? Are you thinking about it, but don’t know where to start? Leave a comment and share your thoughts.

The Power of the Snowball – Part 2

Photo: patterbt

In Part 1, I shared with you an example of how to pay off your debt using Dave Ramsey’s Debt Snowball approach. Today, I’ll talk about some tools to get you started.

A few years ago, I first heard about Dave Ramsey and the Debt Snowball concept. I love reading financial advice books, and so I devoured every single one of Dave’s books. Yes…EVERY. SINGLE. ONE. (I have read all of Suze Orman’s books, too. No surprise, right?)

If you are serious about paying off your debt, I would suggest you read at least some of Dave’s books. Then, get to work - as Dave puts it - with gazelle intensity.

What can be gained by implementing the Debt Snowball?

Two words: FINANCIAL FREEDOM.

Once you’re down to just a mortgage, you don’t have to worry about making monthly payments on several loans – especially in an uncertain economy. If you are a two-income household, you may even gain enough flexibility to consider scaling back and going down to one salary, if you chose to do so.

You can also gain the freedom to never have another car loan – EVER. Some people replace their cars not long after they are out of warranty, rolling their growing debt from one car to the next. As a result, every new car comes with a bigger and bigger payment. By keeping cars well maintained and driving them longer, you’ll continue to save the money you would have paid towards car payments and use it to pay for future cars with cash. Taking a bit of cash out of the emergency fund for minor repairs costs substantially less than a new car payment. Squeezing just an extra year or two out of your existing car once it’s paid off can make a significant difference.

Finally, implementing the Debt Snowball will give you a better understanding of the true cost of carrying debt. That $25k car loan will end up costing you over $30k when you factor in 8% interest over 5 years. Even more eye-opening: The $5k in credit card debt would cost you almost $8k if you made a $100 monthly payment over the next 6 ½ years…or worse yet, if you only paid $75/month, you’d pay over $10k (more than double the original debt!) in the 12 years it would take to pay it off!!!

The compound interest that works to your benefit in a savings account over time is the same thing that works to your detriment and makes it extremely difficult to pay off debt. This is particularly true with high, double-digit interest rate debt, like credit card debt.

Coming Up: In Part 3, I’ll wrap up this series by sharing how to find excess cash to apply to the snowball each month.

The Power of the Snowball – Part 1

Photo: redjar

With the weather finally warming up here in Minnesota and the danger of frost hopefully behind us now, you may wonder why this post even references the word snow.

If you’re familiar with Dave Ramsey, you’ve probably heard of the Debt Snowball concept. The basic idea is to pay off your smallest debt first, then use the monthly payment that you had been paying on that debt towards the next smallest debt, and so on, until you’re eventually debt free. As each debt is paid, you have more and more money to apply to the next debt…thus – the snowball effect.

Here’s an example of how to leverage the power of the Debt Snowball.

Let’s say you have the following debt:

• $5k in credit card debt ($100/month)


• $10k student loan ($400/month)


• Car loans (2 @ $500/month each)


• Mortgage ($1,000/month)


• 2nd Mortgage ($500/month)

That’s $3,000/month in total payments. In this example, let’s say you are able to come up with an extra $500/month to use toward your debt after all the minimum payments are made.

To start the debt snowball effect, you would pay $600/month toward the credit card debt ($100 regular payment + the extra $500) until you have paid off the smallest debt. Assuming a static $5k (i.e. cutting up the card), at a 15% interest rate, you’ll be paying $100 a month for the next 6 ½ years before your balance is paid off. However, paying $600/month towards the balance will retire this debt in just under 9 months.

Accelerating your repayment of the smallest to largest debt not only builds up momentum, but it also gives you quicker gratification that you are truly making an impact.

Once the credit card debt is paid off, then you would move on to the next smallest debt – the $10k student loan. At a rate of 5%, you’d be paying $400/month for over 2 years before your debt is paid off. With the Debt Snowball method, you would pay $1,000/month ($400/month regular payment + $100/month former credit card pymt + the extra $500), thereby paying off the student loan in just over 10 months.

Next, you would move on to paying off your car loans. Instead of making the combined $1,000 in minimum payments, you would make a total of $2,000 in payments ($1,000 regular payment + $100 former cc pymt + $400 former student loan pymt + the extra $500). If you had one car loan with a smaller balance, you could focus on paying off that one first, and then move on to the next.

Whether it’s an extra $500 or some other number, every dollar of excess cash available to apply to the Debt Snowball makes a drastic difference in how quickly you can accelerate your debt retirement.

Coming Up: In Part 2, I’ll tell you about some tools for implementing the Debt Snowball and what you will gain from it. Later, I’ll share tips on how to find excess cash to apply to the snowball each month. Stay tuned!