Monday, September 19, 2011

Motivational Monday - The Snowball Effect

Each Monday I will bring you a financial tip that corresponds with a challenge I'm working on. It will provide motivation to start the week off on a good note and one step closer to better financial standings.

To kick off this feature, we will start with an oldie but a goodie. Dave Ramsey's Snowball Effect.

I have 6 lines of credit out, all of which have become forms of debt. If I look at the total amount of debt I have (roughly $70,000!!) it gets really overwhelming and I don't know where to begin. If I don't have a plan, I will keep making minimum payments and never get anywhere. Fortunately, I stumbled upon the Snowball Effect and it's a very motivating policy.

Now most people think you should tackle the debt with the largest interest rate first. It sounds smart but it's not very rewarding. People need little victories to keep themselves on track. If you pay the minimums on all debts and then put all your extra money towards the smallest debt, you will be able to check that off faster.

Once that debt is paid off, you can take that minimum payment and any extra money and apply it to the next debt, in addition to the minimum payment you were already paying. Your payments are increasing and you are building momentum on becoming debt free. The cycle continues until you are out of debt completely!! This works for any and all debts (student loans, credit cards, car loans etc.)

So I've been working on getting my snowball started for some time now, starting with my Express card. My goal is to get that card down to $0 by September 30th so starting in October I can start on my credit card debt. With my last check from the restaurant, my extra babysitting money and the check from my parents, it will be down to $0 by the end of the month, as long as I'm smart about it. I need to stick to my 25% debt, 50% savings and 25% to me plan and then it will work.

I used Dave's "Snowball Effect Tool" to help me keep track of my payments in one spot and see how quickly it will take to pay off my debts depending on how much I extra I can afford to pay each month. Including paying off my Express card by the end of the month, I'll still be in debt until May 2032! That's in 21 years and I'll be 44! Yikes! Talk about motivation to keep working at it! How cool would it be to be debt free by the time I'm 35 or even 30 instead?!

I think I can, I think I can.

I'd love to hear what your goals are for the week and how you plan to tackle them, financial or not!


  1. My goal is to not spend any unplanned money this whole week. I got paid on Friday and after paying all my bills, grocery shopping, and a mini trip to the mall, I'm broke already (I still have savings of course but I refuse to touch it)! So now I have to do a no spending challenge. Always love those, eh??

  2. Do you get paid bi-weekly or weekly? Good luck! Those challenges are (can be) tough!