THis is what I would do.I would look at all my debts and catagorize them.Meaning put the ones with the higher intrest rates in one and low intrest rates in another.Then go threw the highest intrest rates and catagorize those with the highest pay off amounts.We chose to pay off our lowest amount first(about $700)which happened to have the highest intrest rate(21%
)We didn't do the 10% of our income since we were able to pay it all off at once.Oh and our monthly payment would've been $20.Then we took that $20 and added that towards debt #2 (our visa at $3000 and no intrest untill june of this year,with a min payment of $50,so we were paying $70)We decided to do this one next since our intrest rate would've probably blew threw the roof in June.We ended up being able to pay this off with our tax return.Plus with our tax return we were able to pay off my student loan at a balance of $1000,intrest 8%,min payment $50.So March of this year we paid off $4700 in debt,saved even more on intrest and now we have $120 extra to "snowball" to our equity line with a balance of $11,000,min payment $180,intrest 6%.We also have one other debt besides our house(we are selling this soon)which is my van payment of $386 a mo,$7700 pay off at 13% intrest.Since living frugaly we have found money that we didn't even know we had.So now we are paying $1200 a mo to our van to have it paid off in hopefully 6 mo.
Now after you pay off all your debt with the snowball principle go one step further and put what you were paying in debt to savings for a home,retirement,kids college or vacation fund.We will be able to do this at the beginning of the year.Mine is just an example you could really do it any way you want just as long as you keep rolling over what you payed off to another bill.Also if you think 10% of your income isn't enough I suggest writing down everything you spend for atleast a month and figure out what you can do without(example:caller id,candy bar at grocery store,magazine subscription)
Here is what we did.....
Debt#1-min pay $20mo-paid off roll over to debt #2
Debt#1-$20mo>debt#2 min pay $50 a mo=pay $70 mo to debt#2
Debt#2 -min-$50,paying-$70-paid off roll over to debt#3
Deb #2-$70mo>debt#3 min pay $50 a mo=pay $120mo to debt3
Debt#3-min $50,paying$120-paid off roll over to debt #4
Debt#3-$120mo>debt#4 min pay$180 mo=pay $300 mo to debt4
Debt#5-min pay $386-now paying $1200
The next is future planning...
Debt#4-$300mo paid off
Debt#5 -$1200 mo paid off
Debt 4 + Debt 5=$1500 mo to roll over and put towards savings.
Now this is just an example cause we pay way more than what we are supposed to each mo.Why because we found out that e had more money than we thought.Most of us do if we just look at it differently.I never added my house payment of $514 a mo cause well we are selling it soon to build our dream home and do not plan on paying off our current house and actualy owning it.Now we have figured out what our monthly payment should be on our loan amount we are getting when we build our house,our monthly payment shouldn't be any bigger than $1000 a mo(I know I'm dreaming huh-but this is our dream home for the rest of our lives)So we have figured it out that with the highest intrest rate I could think of(pretty high)as the worst case scenerio we could have our dream home paid off in 9 years after being built by adding $500 a mo to our payment(hince snowballing our previous debts that became savings each month will then go to our new home.Then we also will have that$514 a mo that we had from our house payment we have now wich will go into savings.You could use this method the rest of your life if you want to.It really does work.
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How do you snowball debt
Thank you for the helpful article I know I can use this article!! :)
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