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We're in the middle of winter and depending on where you live you could be seeing a significant amount of snowfall over the next few months. Remember how fun it was when you were a kid and it came a big snow? You got to miss school, and spend all day outside playing. You had snowball fights, built a snowman, and ate snow cream, a personal favorite of mine. Eventually the sun would come out and it would melt all that snow away.
Dave Ramsey says debt is like a snowball. Over time you keep packing the debts on top of one another until you have this huge amount of debt that you think is impossible to ever get rid of. But he has a plan to help melt that snowball away.
First you should accumulate a $1,000 emergency fund. You may be thinking to yourself shouldn't I be paying this money towards my current debt, and the answer is no. You need to have some money set aside to protect yourself if something unexpected should arise. That way you're protected from having to go further in debt. Now, needing a flat screen tv because the Super Bowl is coming up does not constitute an emergency. The most important part of being able to get out of debt is having self control. There's no way you'll ever get out of debt if you can't control your spending.
Next, you need to make a list of all your current debts in order from smallest payoff to largest. It wouldn't hurt to put the interest rates on each of those debts on the list also. Some people say you should pay off the debt with the highest interest rate first, but Dave Ramsey says to pay off the smallest debt first. I personally look at both aspects and make the best decision for me. Ramsey says "paying the little debts off first gives you quick feedback, and you are more likely to stay with the plan". If you have trouble committing to things, then definitely follow his advice.
Once you've created your list and decided which debt you want to tackle, start throwing any extra money you can to get that debt paid off as quickly as possible. You may want to take on a second job until you get your debt under control. If you don't have time for a second job, look around the house and see if there's anything you could sell. We all have things around the house that are just collecting dust, why not sell them and let them collect dust in someone else's house. Also during this time try your best to cut back your spending on any unnecessary things like new clothes and fast food.
Once you pay off the first debt, take the extra money you now have available and start paying on the next debt on the list. If you will stick to this plan, you'll be surprised at how fast you can get out of debt. In August of 2008 we paid off my car. In November we paid off our fence loan (see dog story below). By March we will have my wife's student loan paid off. After that we'll have my student loan, my wife's car, and our house left to pay for. We hope to have everything but our mortgage paid for by the end of 2010. Your debt snowball may look big, but if you start putting this into practice it will all melt away.
How many of you are currently following this plan? If not, are you doing something else to eliminate debt? Let me know in the comments below.
Dave Ramsey says debt is like a snowball. Over time you keep packing the debts on top of one another until you have this huge amount of debt that you think is impossible to ever get rid of. But he has a plan to help melt that snowball away.
First you should accumulate a $1,000 emergency fund. You may be thinking to yourself shouldn't I be paying this money towards my current debt, and the answer is no. You need to have some money set aside to protect yourself if something unexpected should arise. That way you're protected from having to go further in debt. Now, needing a flat screen tv because the Super Bowl is coming up does not constitute an emergency. The most important part of being able to get out of debt is having self control. There's no way you'll ever get out of debt if you can't control your spending.
Next, you need to make a list of all your current debts in order from smallest payoff to largest. It wouldn't hurt to put the interest rates on each of those debts on the list also. Some people say you should pay off the debt with the highest interest rate first, but Dave Ramsey says to pay off the smallest debt first. I personally look at both aspects and make the best decision for me. Ramsey says "paying the little debts off first gives you quick feedback, and you are more likely to stay with the plan". If you have trouble committing to things, then definitely follow his advice.
Once you've created your list and decided which debt you want to tackle, start throwing any extra money you can to get that debt paid off as quickly as possible. You may want to take on a second job until you get your debt under control. If you don't have time for a second job, look around the house and see if there's anything you could sell. We all have things around the house that are just collecting dust, why not sell them and let them collect dust in someone else's house. Also during this time try your best to cut back your spending on any unnecessary things like new clothes and fast food.
Once you pay off the first debt, take the extra money you now have available and start paying on the next debt on the list. If you will stick to this plan, you'll be surprised at how fast you can get out of debt. In August of 2008 we paid off my car. In November we paid off our fence loan (see dog story below). By March we will have my wife's student loan paid off. After that we'll have my student loan, my wife's car, and our house left to pay for. We hope to have everything but our mortgage paid for by the end of 2010. Your debt snowball may look big, but if you start putting this into practice it will all melt away.
How many of you are currently following this plan? If not, are you doing something else to eliminate debt? Let me know in the comments below.
4 comments:
Yup! We're just on Baby Step 1 :)
Congrats on getting your two loans paid off!
Nicki: We all have to start somewhere, and the truth is a lot of people never start at all, so be proud of taking your first step and let me know when you accomplish it.
Amata: Thanks on the congrats. Now we're working on getting my wife's student loan paid off. Then maybe doing some furnishing/painting of our house. There's always something we need to put money towards it seems.
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