snowball – The ART of LOVE & MONEY

Last week we looked at how to Create a $100 Debt Snowball.

Today we are going to reap the benefits and sow the rewards of that effort.

By October of 2004, I am paying $307 monthly on student loans.

Making quick progress, by October 2005, I eliminate the student loans at the remaining $296 and immediately apply the left over $61 to the last remaining debt – the loan to my parents for the down payment on our house.

296+61=50 = $357

The next month, November 2005, I pay the entire $357 on the down payment loan…until the last debt is decimated in August 2007.

See all of those zeros? Those are the months I was projected to be paying on these debts, paying the minimum amount due.

Instead, I put that money into a savings account. Starting in July 2007, I finish off the payment with $199 and immediately put the remaining $156 in savings. The very next month, I put the entire $357 to savings and continue the whole time I was projected to be paying on these debts at the minimum payment due.

Wait, Hold up. Did you catch that? >>> $45,854.

Look at how much money we keep when we pay it to ourselves instead of the banks, to our dreams instead of our debts.

Speaking of our dreams – what was our dream list? Let’s check out our WHY. What could we have done with that money instead – what experiences, memories, travels, improvements could we have instead?

Top 5 Big Dreams >>>

Jamaica $4,600

Kids to Disney World $7,000

Dream House – WHO KNOWS??!

Australia $10,000

Attend the Music Awards $3,500

We could have done most of these big, crazy dreams with $20,754.00 left over for a down payment on our dream house for the same amount of money in the same amount of time with very little intensity and zero income increases.

For more on the debt snowball, see all things Dave Ramsey.

ACTIONABLE STEP:

Email me for a working example of my spreadsheet. I want to share it with you!

Add $100 to the minimum payment until the first debt is wiped out, add all that money to the next lowest debt, continue through your pay-off schedule until all the debt is wiped out. See how much time you have snatched back for your financial freedom.

Just for fun, when the largest, last debt is wiped out, continue to place that money in a projected savings column. Continue to do that through your original minimum pay off date. Look at that number. Feel it pulse through you.

That is what debt costs you.

Now go back to your WHY. How many of those items could be accomplished within the time frame that was originally set aside for minimum debt payments?

Now, think on that a bit. What items can you check off your dream list by paying just $100 more per month on your lowest debt?

BONUS POINTS: Send me an email artofloveandmoney@gmail.com to become one of my case studies. If you are chosen, you will receive a free 15 minute personal finance coaching session via skype and your case study will be spelled out for you in the system that I used to walk our family out of the red and into the black.

Last week we looked at our minimum debt pay-off date by

Tallying up our debts
Writing the minimum payments due
Entering the data into a spreadsheet. >>Download<<
Let that projected pay-off date sink in.

Today we are going to see what adding $100 to our lowest debt balance will do to speed up our progress.

Don’t overthink this, just add the $100 to the payment and when the debt with the lowest balance is wiped out, roll everything that was being paid on that lowest balance loan to the next lowest balance loan.

I don’t even want you to think about where to get the $100 yet, just do the exercise and see how it stirs you. Once we have the WHY, the motivation, you will find the $100 and never look back.

Look at the chart below. I was projected to pay just $9 on the Von Maur card. Instead, I add $100 to my payment and make it $109. I pay off the card in 3 months instead of the projected 35 months.

I also have $27 left over in the third month and I start paying off my Sears card even though it is a zero percent interest for 12 month plan.

What is important here – I started. Somewhere. With whatever I could find.

And I got one small win straight off the bat. I will not be getting a statement in the mail from Von Maur anymore, because I have stopped using the card, and I have focused on eliminating that debt. I now have a plan and I am more interested in paying off debt than I am in acquiring new debt.

Next, I continue to pay the $100 extra money and I add the $9 from the retired debt and add it to the $0 payment that is due to Sears on the stove. I am able to pay that off before it ever becomes due.

See all of the zeros in the columns after the balances? That illustrates to us clearly that we were still projected to be paying on this debt these months.

But not us. Nope. We are going places and don’t have time to wait around for that.

On the 6th month, I have $12 left over so I put that on my next debt, Helzberg and I start paying that off before it becomes due, as well. I pay this card off in 34 months. It was projected to take 58 months.

In reality, it would have taken even longer because I have over-simplified this example to exclude interest. Don’t get hung up on that now, just look at the 24 months of payments you have snatched back for our financial freedom.

Look at the chart below now, notice that all along we have been making minimum payments to what was due on all of the debts.

The snowball method applies the extra $100 to the lowest balance due, regardless of interest and terms of payment. This simplifies things and gives a direction to follow.

In the past 41 months, we have retired three debts early, and one, the Jamaican honeymoon on the original $120 minimum payment according to schedule.

At that point, March of 2004, I have $80 left after paying the remaining $40 balance. I immediately apply that $80 to my snowball of the lowest balance debt – Helzberg.

The following month I pay the $109 payment to Helzberg plus the $120 I had been paying on the Jamaican Honeymoon. Three short months and I am now retiring the Helzberg debt as well. I have $13 left over after paying the remaining $216 balance – that goes directly to the student loan payment. 78 + 13 = 91.

The next month, July of 2004, I add the entire $229 payment that I was paying to Helzberg and I start adding that to the $78 that I had been paying to the student loan. My debt snowball has grown from $109 to $307. I am now rapidly picking up speed and have retired four debts before their minimum projected pay-off dates.

Check back next week for the finale.

ACTIONABLE STEP:

>>Download<< a working example of my spreadsheet. I want to share it with you!

Make a copy of the worksheet you made last week that projects your minimum payment debt pay-off date.

Now, let that sink in.

Tag: snowball

Project Your $100 Snowball Pay-off Date

Wait, Hold up. Did you catch that? >>> $45,854.