Wednesday, July 15, 2009

So, the debt snowball goes like this: (from Dave's website)

"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.

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."

After you pay off one debt, add what you would have spent on the minimum payment on that debt and add it to the next debt.

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