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  1. #1
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    Default The Debt Snowball: A Super-Easy Plan For Reducing Debt!

    by Amy Bergin
    About 43 percent of U.S. families spend more than they earn, according to a Federal Reserve study. On average, Americans spend $1.22 for every dollar they earn, according to Myvesta.org. Simply put, some consumers do not see their earnings as a spending cap. Getting a loan's getting a little harder as of late, but it is still suprisingly easy these days for families to live beyond their means temporarily.

    These financial statistics are sobering, but there's hope. Events, circumstances, and choices may have contributed to creating debt, but now is the time to implement change. Taking action to reverse a debt situation that may never have been intended is the fastest way to turn things around.

    Start by creating a spending plan (budget) and identify exactly how much money can be set aside monthly for debt reduction. Then implement what is commonly known as a "debt snowball": a plan that lists debts with the goal of eliminating small ones first, then moving into the larger debts until they are a thing of the past.

    The Debt Snowball plan looks like this:

    1. In the first column, list each place you have accumulated debt (credit card companies, department store credit cards, loans, etc.).
    2. In the next column, list the balances owed.
    3. In the next column, list the interest rate that applies to each debt.

    Order the list from the lowest amount owed to the highest amount owed. For example, a home mortgage would usually be listed at the bottom because it's often the largest amount of debt carried.

    Keep in mind, when higher debt amounts carry higher interest rates rearranging the order debts are paid is smart. In the example chart above $1,000 is owed with an interest rate of 19% and first debt is $375 with interest rate of 17%. It makes sense to pay off the debt with the higher interest rate first, then move to the next one. Make every effort to maintain zero balances on all the eliminated debts since many consumers quickly sabotage their efforts by building debt back up while trying to pay it down. It's like trying to walk up the down escalator!

    By making a firm decision to live debt free and sticking to a plan like this over the long haul; healthier money management habits will emerge which will yield benefits far beyond financial.


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    Default Re: The Debt Snowball: A Super-Easy Plan For Reducing Debt!

    I get the snowball effect principle, but with two of us working and spending, we often don't communicate what we have spent, how do you suggest we do that? I really want to save, but find myself overspending all the time. How do we do this without sabatoging our relationship as we fight about money alot right now.

  3. #3
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    Default Re: The Debt Snowball: A Super-Easy Plan For Reducing Debt!

    Quote Originally Posted by flutterbye0419 View Post
    I get the snowball effect principle, but with two of us working and spending, we often don't communicate what we have spent, how do you suggest we do that? I really want to save, but find myself overspending all the time. How do we do this without sabatoging our relationship as we fight about money alot right now.
    Good luck! Hope you two can get it together much sooner than me & mine did! I'm a saver, always have been but DH bless his heart is a spender. At first we fought about it but I decided as long as we have food on the table and a roof over our head I'd ride it out until he grew up or some how saw the light. I tried over the years but it was about 10 years ago when I had made a few comments and he had time to think and it dawned on him that in 10 years he could retire but with all our debt he'd be forced to keep on working probably until he died. That finally opened his eyes! We had at that time 187,000 in credit card debt! No that didn't include the house! It's all gone and we pay cash for everything now. Want a new car? save for it. Took him 8 months but he got a great deal because he had cash money! He retired on time and is loving it! If we had done this from the start we wouldn't be making house payments in retirement and could of had anything we wanted. Bring your own spending into control and try to put aside some savings without him knowing it. When things got bad for us I always had some savings to pull out of hiding that made me the hero of the day. He now realizes we could of easily saved 10% and been millionaires by now. But he had to have it right then and couldn't wait. So good luck to you until you find the magic moment to help your man see the light! Dave Ramsey does a really neat thing about what buying and financing a car really cost. When you figure the interest up over the length of the car and tack that onto the price you paid it's pretty staggering and he then says "hope you enjoyed the car!" Dave Ramsey has a great ministry. I wish he had been around when we could of used him. But he is there now and maybe you can get your other half to read his book or go see him when he's in your area! If you have a good marriage except for the spending part then hang in there and hopefully both of you can figure things out together before you get to far in over your heads!
    Last edited by brchbell; 02-28-2009 at 08:52 PM.

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    Default Re: The Debt Snowball: A Super-Easy Plan For Reducing Debt!

    I get the snowball effect principle, but with two of us working and spending, we often don't communicate what we have spent, how do you suggest we do that? I really want to save, but find myself overspending all the time. How do we do this without sabatoging our relationship as we fight about money alot right now.
    Who pays the bills in your house? I ask because my hubby would spend and spend and never think about it, he never paid the bills I did that. I got fed up one day and said it wasn't fair that I had to be the one to make out all the checks and figure out where to get the money to pay the bills while he kept spending. After two months of him having to pay all of the bills he stopped spending the money and we talked before any purchases even groceries.

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    Default Re: The Debt Snowball: A Super-Easy Plan For Reducing Debt!

    brchbell- thank you for your story. I will try to remember your story forever.
    wilbe95- we both pay the bills. I pay the rent which adds up to be about the same as our utilities and other things, so we both pay the bills. We also both do alot of spending that should be minimized. I have recently spent almost 500 on my daughter's 6th birthday party without even realizing it! Grrr. I need help and fast.

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    Default Re: The Debt Snowball: A Super-Easy Plan For Reducing Debt!

    Wow that is a lot for a birthday party, sorry not trying to be mean. Have you tried the envelope system? That really does help keep spending under wraps as long as you don't use the checks to pay for items. Seems like when you use cash you think a little more about if you really need it.

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    Default Re: The Debt Snowball: A Super-Easy Plan For Reducing Debt!

    You are totally not being mean. I volunteered the info. We don't have a bank account, so we only use cash. I have sort of tried the envelope system, but I just have a hard time keeping with doing that for some reason. I think part of it is that we really don't have friends to go out with once a month, so we have felt like we don't need to save for anything like that, we have zero in savings, but should be putting ten percent in and I just feel like i need someone to hold me accountable for making sure savings is done. Sorry for the whole story.

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    Default Re: The Debt Snowball: A Super-Easy Plan For Reducing Debt!

    Brchbell - congratulations on paying off all of that debt. What an accomplishment!

    Flutterbye - your story sounds a lot like mine. We live check to check and though we have a bank account until recently there was never anything in it. We have a lot of debt. I pay all the bills and my husband, until just a few weeks ago, would use the debit card without thinking because he had no clue what it was like to juggle the bills every month. Even though it was always small amounts it would always put me a few hundred dollars behind every time I balanced the checkbook. This winter, after 25 years of being frustrated and depressed about money I had had all I could take. A local church near us offered a Dave Ramsey Financial Peace University class. My sister and I signed up right away. Let me tell you, if you ever have an opportunity to take one of his classes do it! Even though we still owe a lot of money for the first time I am calm about it because I have a plan and know I will pay it off. We now have an emergency fund in the bank, have paid off one credit card, the next will be paid off mid-April, and have a budget in place. The Debt Snowball works!

    Ann

 

 
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