Total Debt Paid: $24,992
Total Debt Remaining: $51,984
Pay the debt thou hast contracted… Release thyself from bondage.
The snowball just isn’t moving as fast as it used to. But I’m not giving up on my goal of getting out of debt.
If you are in debt and have found the enthusiasm and desire to get yourself out, you probably understand what I am talking about. In the beginning– once you’ve found a high level of focus and intensity, you’ve stopped borrowing money and using credit cards, you got on a budget, and really started to tear into paying down your debt (using the snowball)— debt elimination seems easy and the snowball builds rapidly.
If you follow the steps I have discussed on this blog, which are also the steps taught by the LDS Church and made famous by Dave Ramsey (debt snowball), then you’ve listed your debts in order from the smallest balances to the largest balances and you’re paying every extra dollar you can find (after paying all your minimum payments) on the smallest of your debts. Normally, these will be small medical bills or small account balances on a department store credit card or a loan from a friend or family member. Most of these debts will either carry no interest (medical bill, family loan) or have lower interest, so tearing through the first few thousands of dollars in debt tends to come quickly. This is the reason this approach is so effective. Small wins in the beginning produces momentum and encourages more enthusiasm and intensity to get out of debt. Track your total debt payoff and you’ll be amazed how much you will eliminate in the first several months.
The difficult part comes when you begin to tackle the higher balances and the higher interest debts. It will feel like you’ve hit a wall. For example, in the first year of my get-out-of-debt-program, I paid off an average of nearly $1500 per month and nearly $18000 for the year. The total debt balance seemed to be dropping like a rock in water. Small medical bill ($369), GONE. Student Loan ($933), GONE. Loan from my parents ($1400), GONE. Car loan ($4100), GONE. Before I knew it nearly 1/4th of my entire debt was gone. However, since about the one year mark, the process has been moving much more slowly, but I’m still surely going to get there.
As you move along your path of debt elimination, there are going to be challenges. There will be unforeseen emergencies. Your car will break down. You or your child will get sick or need some dental work done. Some months will be better than others. This is why the emergency fund and the budget are so vital. The emergency fund will act as insurance and protect you from some unforeseen events. It will prevent you from having to borrow money and becoming derailed from your path toward debt freedom. The budget will keep you focused and help you maneuver through the month-to-month challenges.
My debt snowball payment is up to $700, meaning that at least $700 is going toward the debt with the lowest balance. I am also working on credit card debt and student loan debt. These are higher interest debts. The payments are much higher, but much of the payment is going to pay interest. For example, in April of this year (2011), we began repayment on some of the student loans. The first couple payments went entirely toward interest, maybe dipping only a few dollars into the principle. This has caused our average monthly debt reduction to drop to nearly $1000. We have also had to cover some car repairs, dental work, and other unexpected expenses. Our emergency fund and monthly budgeting has allowed us to stay on track, albeit at a much slower pace, but we are staying focused and being patient. In the long run it will all even out. The last few months of the process will be just as fast as not faster than the first few months.
One of the greatest fables told is one of Aesop’s Fables, The Tortoise and the Hare. The famous moral of the story is “slow and steady wins the race.” The hare is obviously much more capable of winning the race, but less focused on what it takes to actually win. The tortoise plugs along slowly, steadily, and surely. While the hare is arrogant, unfocused, and lacks patience. The crazy thing… the tortoise wins every single time.