Let’s Talk Money! (Part 2)

The other day I talked about my budget and shared it with you. I hope it helped you and you were able to start your own budget sheet.

Today I want to share what my next step is to become debt free. It’s call the Snowball effect.

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What is the Snowball effect you ask? Well… let me just tell you about.

I actually heard about it a long time ago, but I can’t remember where then my church (remember the series I showed you the other day) went over it too. This time I decided I am going to do it.

This is what Richard has been doing with his debt and it’s what I am about to do. I say about to do, because you can’t just jump into it. No.You have to have a net first. You need some safety and some wiggle room. So the very first step before you do anything else is get at least a $1000 in savings. This is where I currently am at.

I can’t afford a $1,000 you say?? Well, you can, you just don’t know it.  After you look at your budget for a month or two, you will start seeing where your money is going and then you can make cuts. Cut out anything you don’t need, or like in my case…cook more at home instead of going out to eat. Do whatever you can do to get the savings to add up. While you are working on the savings, quit paying extra payments. (That’s what I was doing – putting all my extra money on my debt. Stop. Pay minimums for now, it will catch up later.) Put what you put on the debt into savings.

Got your $1,000 saved? Good. Now we can move on…

The snowball works like this: Say you have two credit cards, student loans and a car.

So it looks like this:

  Amount Owed: Min Payment:
Credit Card 1 $1,000 $25
Credit Card 2 $1,000 $25
Student Loans $10,000 $200
Car Payment $15,000 $280

On the first month you will pay the minimum payments on all the payments except Credit Card 1.

You need to come with some extra money, say $200 extra a month, and then you will pay on credit card 1 your minimum payment which is $25.00 + $200 (whatever you can put.) so your new payment would be $225 a month on credit card 1.

Once you paid off credit card #1 off you take $225 (which is what you were paying on credit card #1) plus the minimum of Credit card 2 and you have  a new payment of $250.

  Amount Owed: Min Payment:  New Payment
Credit Card 1 $1,000 $25 $225
Credit Card 2 $1,000 $25 $225+$25= $250
Student Loans $10,000 $200 $200
Car Payment $15,000 $280 $280

So you keep doing that until all the debt is paid off.  As you can see, after you start paying things off  it starts gaining speed and growth and then before you know it you are making your last payments.

  Amount Owed: Min Payment:  New Payment
Credit Card 1 $1,000 $25 $225
Credit Card 2 $1,000 $25 $225+$25= $250
Student Loans $10,000 $200 $250+200=$450
Car Payment $15,000 $280 $450+$280=$730.

Paying $730 a month on a $15,000 loan won’t take as long as pay $280. Catch my drift??

So.. that’s how it works. I know it works, I have seen it work. Richard did it and my friend did it when I first told her about it! I just need to stick to it and really do it and hopefully I can be debt in a year! I’ll keep you updated and let me know if you try this and if it works for you or if you have already done it? Have you ever heard of this?

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