If you have been following along, you know for the last week and a half I have been talking about baby step 2, dumping debt, from Dave Ramsey’s book and way of life, The Total Money Makeover.? Within step two, there are six keys to dumping debt forever and changing your family tree.? I have talked about how I have applied each of the previous five keys, and today I am going to explain in simple terms what the debt snowball is, and how I am using it.? Of course, you are going to want to read the book for greater details if you have not done that already (in case you are wondering I don’t work for Dave Ramsey, at least not yet anyway; although Nashville is a beautiful city;-).

The debt snowball works like this.? You take every single person you owe money and you list them out with the total balance and the minimum monthly payment.? You place the creditor or individual you owe the least at the top of the list, and order them in that fashion where the creditor at the bottom of the list is the one you owe the most money.? Utilizing your monthly cash flow plan (budget), you make sure and pay everyone in your list at least the minimum payment every month.? As you do some of the other keys, such as selling items, working a second job, etc…You apply all the extra money to the top of the list; absolutely attacking it with all the intensity that you have.? Once the top debt is paid in full, the payment you were making to the top debt transfers down to the next debt, creating the snowball effect.? Then when the new top debt is paid, shift both minimum payments to the new debt that is at the top of the list.? The snowball is really building up steam by this point, and you can immediately see your progress which motivates you to do more.

In my case, when I listed everything out, I had about 25 debts that did not have a minimum payment because they were due in full or in fact past due in full.? I also did not have money to pay any of these in full, or else I could not pay the others at all, so I had to create a formula.? I placed all of the debts in a spreadsheet, determined what percentage of the debt that each one accounted for, and then plugged in the amount extra that I had in my budget after the four walls were taken care of and all the other minimum payments were met.? I then used that number as my minimum payment for each.

Of the 25, at least 20 of these creditors or individuals wanted considerably more than I was able to pay them.? While I was not able to make them happy with this system, they have all at least been patient.? Fortunately, several of them have heard of Dave Ramsey and understand that it is a system that works.? Since I have started this system, I have not been sued, yet.? American Express has threatened to go ahead and do that at least once weekly, and refuses to accept any payment plan of any kind, but even they have not done anything more than harass me so far.? Despite what they are doing, I still send them a payment every month.? That is a hard, but important part, no matter how mean and no matter how nice, I am fair with what I send.? I don’t send less to people that have evil collections departments (American Express), or more to friends, unless they are at the top of the snowball.

There are other people in the system that I would love to pay first and to pay more, but I feel if I move outside of this system, it will create huge issues for me with some creditors that I owe a substantial amount.? I am sure they would see that as unfair, and immediately lose patience.? To counteract that, my only reaction has to be to get more intense about getting the snowball running down the hill.? So far, every month since January I have knocked at least four off of the top of the snowball.? With getting back to Springfield, at least for a short time in April, I am sure I will get at least that many taken care of next month as well, as I sell virtually everything we own.

Jeremiah asked me last night when I could take him to play golf.? We looked at the refrigerator that has all 53 of our original creditors on it.? Twenty of them right now have a red line through them.? I told Jeremiah as soon as we get all of those crossed off of our snowball.? That will be a good round of golf!