Are you trying to become debt-free or at least trying to pay off some debt?
If so, I commend you for your financial effort. I am a firm believer in debt-free living.
My wife and I have been debt-free except for the mortgage for over a year now. We used the debt snowball technique popularized most recently by Dave Ramsey to pay off everything.
The debt snowball works! It really does. I’ll share some of my experience and the experience of others in using it successfully to break free from the slavery of debt.
The advantages experienced from getting debt-free
Paying off all our debt has given us a sense of financial peace and security. We aren’t as afraid of the recession because we aren’t strapped for cash. In fact, we continue to live below our means since we paid off our last debt and we have some cash in the bank just in case.
As J.D. over at Get Rich Slowly points out in Free at Last! Saying Good-Bye to 20 Years of Debt, paying off your debt opens up your options in life. It gives you more freedom to pursue your desires.
After using the debt snowball technique to pay off all his debt, J.D. was able to quit his day job and become a full-time blogger! How awesome is that?
A brief overview of the debt snowball technique
The debt snowball technique is amazingly simple. It doesn’t take much time to explain, yet it is a powerful tool for taking charge of your financial situation and reducing your debt.
Here’s how the debt snowball works:
- List your debts from smallest to largest, but exclude your mortgage. Be thorough!
- Make minimum payments on all but the smallest debt to stay current.
- Pay the most you can on the smallest debt until it is paid off.
- Roll the total amount you were paying on the smallest debt into the payment on the next smallest. This builds your snowball as you move through the list.
For an example of how the snowball works and for more details, please see my article Back To Basics- Using The Debt Snowball To Pay Off Debt.
Problems you may encounter with your debt snowball
Anytime you try something new, you are going to encounter unfamiliar situations that you aren’t sure how to solve. Things may happen as you are paying off your debt that mess up your snowball.
Here are three common debt snowball issues and how to solve them:
1. Giving up and incurring more debt.
As I said earlier, the debt snowball is amazingly simple, yet it is not easy. It takes time, commitment and discipline. The snowball, when done correctly, is designed to maximum your chance of success, but there are a couple of things you need to do to help.
First, you have to stop the bleeding in order to heal the patient. You must stop incurring more debt! If you don’t, then you’ll lose traction, become demoralized and quit.
Second, be sure you stick to the debt snowball technique exactly. The debts are listed smallest to largest and attacked in that order because this method will ensure you have some early wins. Getting a few small bills paid off will give you the confidence that freedom from debt is possible. This is 80% mental and 20% method.
2. Letting an unexpected expense get you off track.
This happens to almost everyone that is trying to get out of debt. The key is to prepare properly. Dave Ramsey and many others suggest creating a baby emergency fund of at least $1,000 prior to starting the snowball.
The baby emergency fund will allow you to handle a lot of smaller emergencies or unexpected expenses without going into more debt. You simply use your emergency fund to pay the expense, temporarily suspend your snowball to replenish your emergency fund and then resume the snowball once you have $1,000 or more in the bank again.
3. The temptation to try a shortcut.
I won’t lie to you. Paying off debt sucks. Once it is paid off it is wonderful, but the process kind of stinks. You have to give up some things in the short-run in order to gain long-term financial success. For most, it takes 18 to 24 months to pay off all their debt except the mortgage.
Along the way, you are going to be tempted to take some shortcuts. You are going to see ads for places that will suggest they can help you reduce your debts to get them paid off faster. You are going to hear about debt consolidation loans that suggest they can solve your problem instantly.
Do not fall victim to these persuasive peddlers of instant gratification. Most of them will cost you more money and will not do anything for you that you can’t do for yourself! Stick to the debt snowball plan and you will succeed.
Getting debt-free is worth all the effort, trust me!
You will not be disappointed in becoming debt-free. It is a wonderful feeling of peace and security. This is one of the best things that you can do for your kids and family. They will learn from you and this will become part of your legacy. How great will it be to know that you changed the financial destiny of a large chunk of your family tree? Awesome!
Where are you at in your journey to becoming debt-free?
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