Are you tired of living pay check to pay check, tired of living in debt, barely keeping your head above water? In his NewYork Times bestseller, Total Money Makeover, Dave Ramsey devised a system to quickly pay off non mortgage debt using the snowball method as follows:
- Writing down all the debt has from smallest to biggest with the respective minimum payment required.
- Make a monthly budget, for example using excel spreadsheet like this one Easy monthly budget ; try as hard as you can to stick to the budget.
- Save $1000 in an emergency fund. This is to cover unexpected expenses like when the water heater breaks down.
- Start paying the smallest debt, while paying minimum required payment on the other debts. Pay as much as possible on the smallest debt. When you are finished with the smallest debt, move on to the next debt.
- In case of a pregnancy, go back to making minimum payments on all debt, instead save for the baby and anticipated hospital bills. Dave calls this Stork mode. Resume the snowball method after baby born.
- Create sinking funds for expected bills like car repairs, birthdays, Thanksgiving & Christmas.
- Look for a “Dave” job to quicken your snowball ball. Any job, like pizza delivery, baby sitting, delivering flowers on mothers day and valentines day, Uber-ing ( is that even a word?) Taking on extra shifts at work
- Start selling unwanted/unused stuff from around house on Facebook, through garage sales to make extra money to pay off debt.
- Look for relatively priced electricity, television, internet/mobile phone subscriptions.
- Unlink your credit card from stores.
- Pay cash instead of using cards. With cash people tend to think twice before spending. Adopt the envelop system.- Where by you stuff different envelops with money for different bills on monthly basis. e.g groceries, clothes, gas, entertainment, pets etc. You could do the envelops in different color for easier identification. The key is using the assigned money for its purpose. When you borrow money from one envelope to another, make sure you out that money back. You carry forward the remaining money from the previous month. I am still struggling with sticking to the envelop system. Sometimes i forget and use the card. It is better to leave the card at home.
Many people around the world testify to being debt free after using Dave Ramsey’s snowball method. It is hard, you need to be gazelle intense but the rewards are tangible. As Dave says, “if you live like no one else, later you can live no one else.”
I will write more about debt snowball in my next post.