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Thread: Get out of debt with the Snowball Payment

  1. missing my sanity
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    #1

    Thumbs Up Get out of debt with the Snowball Payment

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    Don't know if any of you heard of this before but I love it!!

    I just posted some of the main thing but here is a link to the entire article:
    Snowball Payments
    I've done this and it feels great when you pay off one of your credit cards or loans *especially with Navy Federal who sends you a thank you note when you pay off a loan

    Myth: I should pay off the debt with the highest interest rate first to get out of debt quickly.
    Truth: You should pay off the smallest debt first to create the greatest momentum in your debt snowball.

    Debt Snowball Plan
    The principle is to stop everything except minimum payments and focus on one thing at a time. Otherwise, nothing gets accomplished because all your effort is diluted. First accumulate $1,000 cash as an emergency fund. Then begin intensely getting rid of all debt (except the house) using my debt snowball plan. List your debts in order with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs, then list the higher interest rate debt first. Paying the little debts off first gives you quick feedback, and you are more likely to stay with the plan.

    They have an online sample to help you that you can try located at: Start your own Snowball tracker

    Or if you don't trust putting things like that online I made a Microsoft Excel tracker that I am willing to email out with instructions on how to change the formulas to how much you want to make payments for a projected tracker. Just PM me if you would like that.
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    #2
    We are using this. I've heard from many friends it works very well.

    I'm praying for the day that I get out of debt more and more.
    "Obstinacy is a fault of temperament. Stubbornness and Intolerance of contradiction result from a special kind of Egotism, which elevates above everything else the pleasure of its own autonomous intellect, to which others must bow.: Carl von Clausewitz
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    #3
    Quote Originally Posted by DakotaCowgirl View Post
    We are using this. I've heard from many friends it works very well.

    I'm praying for the day that I get out of debt more and more.
    OMG Mater!!!! Sorry, love your avatar!! My stepson is OBSESSED with Cars.

    I'm doing the online version right now (it's slow since I'm on the ship and internet sucks) but it's pretty neat. It's showing me that with a credit card with a balance of $2,991 it will take me until 2018 to pay it off if I just paid the minimum balance!!! That is crazy!! 7 years to pay off under $3k?? Redonkulouse! I'm so glad I never pay minimum balance on anything! But it's interesting so far. Can't wait to see how it looks when I finish it. With the extra money I'm getting/saving on deployment I plan to be done with both my credit cards by next summer.

    Good luck with your debt
  4. Libertarian by Nature - Your_Anz
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    #4
    This was a good read. I have always paid the highest interest down and paid just a little bit over the minimum payment on the rest... I wonder how much quicker it would have been to have done it this way!
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    #5
    However, if you have debt that have high minimum payments and high interest, if you can, its better to pay those off and use the payments to pay other cards, thus freeing up your debt faster.

    It would take a lot longer to get debt free if you pay off the lower payment per month stuff first.

    Really, either way will work, its a matter of how much you have. We pay off high interest, high payment things first, giving us more money to put towards the other debt per month, thus getting us out of debt sooner. Its taken only two years to eliminate over $30K in debt using the pay off high first method.
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    #6
    His idea works on human psyche. If someone has one credit card with $10,000 at 18% APR and another one with $2,000 at 10% APR the smaller amount will be easier to pay off in a short amount of time. When they have totally eliminated one debt and can cross it off the list they feel a sense of accomplishment and are motivated to keep at it. People tend to get overwhelmed when they see nothing but very slow progress and give up.

    Not everyone of course, but it's pretty true for humans in general.
  7. Quis custodiet ipsos custodes?
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    #7
    I agree with PP, either way can work it depends on what suits the person better. I don't like how they say it's a "myth" to pay off high interest debt first, because that DOES save money in the long run.

    For people who need more motivation, the snowball is good though. But if the gratification is not necessary to keep motivated to paying off debt, there is nothing wrong with paying off high interest debts first.
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    #8
    Quote Originally Posted by Tojai View Post
    I agree with PP, either way can work it depends on what suits the person better. I don't like how they say it's a "myth" to pay off high interest debt first, because that DOES save money in the long run.

    For people who need more motivation, the snowball is good though. But if the gratification is not necessary to keep motivated to paying off debt, there is nothing wrong with paying off high interest debts first.
    Sometimes it does but not always. It really depends on the balances. If you can pay off several smaller balances quickly even if they have lower interest rates and then add the entire amount you had been paying to the higher balance it may very well save money and a lot of it in the long run. For example let’s say it takes you 4 years to pay off $15,000 at 18%, all the while you have been paying the minimum payments on the lower debt APRs. That would cost a lot more money and take a lot longer to be debt free.

    If you can manage to get the smaller debts paid off in say 6mo, put all that payment money onto the $15K card you could pay off that $15K in far less than 4 years. Thus saving not only the additional months/years of higher interest, but also the interest on the smaller debts that would still not be paid off if you chose to pay off the higher interest rate first.
  9. Quis custodiet ipsos custodes?
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    #9
    Yes you are right, I was thinking of equal amounts but paying off many small accounts could be beneficial.

    I think that just goes to what I was thinking, that it can depend on so many things! I just don't think it's possible to say that snowball is 100% right all the time or high interest rate is right 100% of the time ... I don't like the myth vs truth thing because there are so many factors.
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    #10
    Quote Originally Posted by Tojai View Post
    Yes you are right, I was thinking of equal amounts but paying off many small accounts could be beneficial.

    I think that just goes to what I was thinking, that it can depend on so many things! I just don't think it's possible to say that snowball is 100% right all the time or high interest rate is right 100% of the time ... I don't like the myth vs truth thing because there are so many factors.
    Nothing is ever 100%. He also recommends if you have two similar balances to always pay the one with the higher interest rate off first.

    Statistically people do better and stay motivated if they have "wins" along the way. Just like being on a diet. If someone exercises frequently, eats healthy, and doesn't loose any weight...it's easy to give up since they feel like no matter what they do they didn't loose a pound. If on the other hand they lost 10lbs the first month, well...talk about a huge motivator!

    The program is not for everyone. However, if someone follows it as he recommends they will become debt free.
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