Let the snowball roll!

For obvious reasons, the snowball effect makes the think of winter. However, in the beginning of August, snowballs have nothing to do with that.

Ever since reading Dave Ramsey’s Total Money Makeover 2.5 years ago, I have been wanting to do the financial snowball effect but I have never been prepared to. The idea is that you  pay the minimums on each debt you have and all extra money you have goes towards your smallest debt.

Now, Dave Ramsey says to focus on your smallest debt, not the one with the highest interest rate, because you need that small incentive to show you’re hard work is paying off. If your biggest loan has the highest interest, it will take longer for you to feel that reward and you run the risk of losing motivation.  

Once that is paid off, you can put everything you were paying towards that debt to your next smallest debt, in addition to the minimum payment you were already making. That way each time you pay off a debt, your strapped with even more money to pay off your next debt and you get out of debt faster. Did I say “debt” enough times for you just now? I hope you get the point.

Each month I was just barely able to pay my minimums and stay above water. The idea of having any money left over was simply a cruel joke. But now that Matt and I have joined forces, we have started the Snowball Effect and it’s kind of fun!

Matt had a small balance left on a student loan so he put less towards savings and more towards this loan until it was paid off. As of last paycheck, he made his last payment on that loan! My credit card balance is the next smallest debt we have so it was my turn to tackle it. I took the extra money that Matt was paying towards that loan ($50/paycheck) and put it towards my credit card payments so instead of paying $70/month, I now pay $170/month. I cannot wait to see my balance go down faster!

And then when that’s all paid off (hopefully within the next year), we will put an extra $170 towards our next smallest debt. I’m very excited about that too!

Now, with credit cards, there are ways to lower your interest rate to pay your balance off faster. It would save us about $500 if I switched my balance over to a card that had a 1 year 0% interest rate promotion going on. However, you must have an “excellent” credit score to qualify for that kind of promotion.

For $8, I went to Equifax.com to find my credit score and discovered I’m at a 706. It’s considered average or good, but not excellent.

Bummer, man. Close, but no cigar.

So why isn’t my credit excellent? It’s nothing that I’m doing wrong!

  • All 6 of my accounts are in good standing, but the fact alone that I have 6 accounts is a dent in my score.
  • Also, my credit card is a little too close to being maxed out for my credit scores comfort. Obviously this is the debit I’m tackling next so my score should improve.
  • Lastly, I haven’t had credit for a long enough time to consider myself established.

It would be great to save that extra $500 and pay off my credit card faster but I won’t let it get me down. I’m simply impressed that we’re able to live comfortably, afford to pay for a wedding (on a budget of course) and tackle our debt at the same time. And the feeling of having one loan paid off and out-of-the-way is incredible. I can’t wait to keep that snowball going!

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