The ‘Debt Snowball’ - Clover Sites
The `Debt Snowball'
Adapted from Dave Ramsey: Financial Peace Revisited
Steps: 1. Save $500-$1,000 in savings as an emergency fund while you get out of debt* 2. List all your debt on paper...ALL of them 3. Re-order this list according size of the debt; smallest to greatest. 4. Pay the smallest debts off first (this allows you to see and feel some early success)** 5. Once you pay one debt off then roll that payment into the next debt (don't spend it!) 6. Once the next debt is paid, add both payments to the next existing payment, and so on.
*If you are single and living at home for instance, then you don't need as much in an emergency fund. If you have a family and own a home, then you'll need a larger emergency fund.
**If you have two debts of about the same amount, always start with the highest interest rate.
Example: Item Visa Student Loan Car Mastercard Gas Card House
Balance 1,200 7,000 6,500 700 400 100,000
Payment 200 123 250 70 60 900
Interest rate 18% 9% 12% 22% 18% 5%
Reorder the list...
Item
Balance
Gas Card
400
Mastercard 700
Visa
1,200
Car
6,500
Student Loan 7,000
House
100,000
Payment 60 70 200 250 123 900
Interest rate 18% 22% 18% 12% 9% 5%
Once you pay off the gas card, then roll the $60 payment into the $70 payment to Mastercard. So, you're now making payments of $130 to Mastercard in order to get it paid off faster, and so on.
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