Snowball to success

Document created by chelsear on May 22, 2016Last modified by on Dec 5, 2016
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Debt, especially sizeable revolving-balances-topped-with-financial-aid-debt, can be overwhelming to tackle. At the age of 25 I had successfully overcome my revolving balance debt, twice. I'm still working on tackling my financial aid debt but the techniques are similar.


The first thing you must remember about debt, is that it is often tied to other problems in your life. For instance, the first round of debt that I accumulated coincided with a breakup; I was depressed and spending money, buying what sparked my fancy, and generally living large, to make myself feel better. Although looking at the balance steadily creep upwards towards my limit made me uncomfortable and anxious, what was another hundred dollars when I already owed thousands? Instead of focusing on my emotional problems, I made a financial one to distract myself. Even if you find yourself in debt for more noble reasons, I'm willing to bet you didn't exactly get there without some sort of issue making the decision to take on this debt seem like a better option than the alternatives. This is why as soon as you dig yourself out of debt, your work isn't finished. You need to turn your focus to setting aside an emergency fund so you don't end up in this position again.


So how do you get yourself out of debt? You need to first have a realistic picture of where you are at. Look up all your account balances, your interest rates, and due dates. I like to make this easy for me to visualize by making a mock-calendar without day labels, just dates, and listing due dates with minimum payments, total balance, APR, etc. Next take stock of your income. You also need to have an honest accounting of where your money goes. This can be hard. I like to use free apps like Learnvest or Mint to sync my accounts and track expenses for a month or two to establish a baseline. Now- here's where the challenge level increases. Look at what your spending habits are and find places you are willing to cut costs. Since you're reading this I'm comfortable saying that you're motivated to make life changes. That said, these still can be hard. But what's the end goal? Maybe you want to be worry-free. Maybe you want the collectors to stop calling, or maybe you want to get out of your parents' basement. Whatever it is, focus on that as you cut out the daily latte on the way to work, or have to pack a lunch instead of eating out. The first step is really looking at frivolous spending we all do. Next, I want you to loot at the recurrent bills you have that are more necessary. These are like cell phone bills, car insurance, internet, car payments. What can you do to get these down? Shop around and be a choosy consumer. Every dollar you save is a dollar you can chip away at your debts. This may seem like more work than it's worth, but the $20/month you save by switching insurance companies quickly turns into $240 and saves you even more through not having to pay interest on that. You also want to establish a monthly budget for all your purchases. And the kicker, stick with it. This can be very challenging, just like turning down the second helping of your coworker's special rum cake that she brings to the office for every birthday celebration is challenging.


Now you should have a sum available to you to put towards debt, how do I you utilize it? This is where documenting all your debts comes in handy. My general rule is to make the minimum payments on everything. This ensures your credit score doesn't get worse at the very least. Next, look at if you have any small balances that you can pay off quickly. I like to knock those out to give me a little reward for all my hard work and the monthly amount you were putting towards this can now be snowballed onto your next debt-focus. After small, quickly paid balances, you want to look at high interest accounts. These cost you more in accrued interest. I also consider any credit card debt that occupies more than half that particular card's limit. Just having this brings down your credit score. To get myself out of debt, I also look around to see if I'm not using anything of value. I comb through my closets, bookshelves, and garage and I either list items on eBay or I list them on Craigslist. Use this money towards your debts as well-these items may have very well helped you get into this financial position, make them help you get out of it. With every debt eliminated, you can tack this money towards your next bill until viola, you have used the snowball method to get out of debt!


Final tip: as soon as you get paid, assign your money to bills, debts, and budgeted items. When you're in the get-out-of-debt phase, you add any extra money you receive towards paying your debt focus at the time. Once you're out of debt, your focus switches to building an emergency fund, typically equal to six month's of your take home pay.