What is a Debt Snowball? + Debt Snowball FAQ

Brent Pittman —  08/08/2012 — 7 Comments
Pushing Debt Snowball

Photo credit Caleb’s Photography.

So you want to pay off debt? Want to really find freedom from your debtors and be able to use your money how you choose?

It’s not an easy road ahead, but you can do it! Most pay off their debt in 18-24 months, not counting their mortgage.

I can tell you from experience that being debt free is awesome! Before you begin down this debt free road, save your $1000 starter emergency fund, so you won’t have to use debt when trouble comes.

You’re on a budget right? If not, start budgeting like a pro as you learn how to beat debt using the debt snowball. Don’t forget to eat and pay the rent before you attack debt.

What is a Debt Snowball?

The debt snowball is a simply a system to organize and systematically pay off your debt. It’s a plan.

Have you ever rolled a snowball down a hill? What happens? It gets larger and rolls faster. That is exactly what will happen when you use the debt snowball method. No, your debt won’t grow, but the payoff momentum will speed up exponentially.

How to Use the Debt Snowball?

Organize your debt from smallest to largest.–Don’t worry about interest rates. (see FAQ)

Go ahead list them out. It might actually help you feel more comfortable about the debt dragon you’re facing when you put it on paper. Example:

Make Minimum Payments on all debts. If you have any money left over from budgeting beyond minimum payments, apply this towards your smallest debt.

In our example you’ll be making $825 total in mininum payments. If you make that $826th dollar it is applied towards your credit card #1 as extra.

Payoff your Smallest Debt- This might take some time. You might need to increase your income or sell some stuff to get this snowball moving.

Roll Your Snowball - After you’ve paid off your smallest debt apply the minimum payment you just paid off toward your next smallest debt.

In our example after you pay off credit card #1, apply that $45 towards credit card #2 + the $55 you were already paying for a total of $100.

Now you’re rolling! With those extra payments your time in debt will dramatically decrease and the amount of interest you’ll pay will shrink too.

Keep Rolling- Keep rolling up your debt payments until you’re done. It will happen faster than you think! The hardest part is getting the ball to roll.

Inspire Others- When you’re debt free tell everyone and send me your debt free stories, so I can add you to this list of debt free stories.

Large Snowball

Getting out of debt is better with friends! Photo credit  kamshots.

Debt Snowball FAQ

What about the interest rate? [common sense answer] The reason to pay down your smallest debt first without regard to interest rate is to get a quick feeling of success. Eat the hushpuppy now and save the elephant for last. If you don’t succeed quickly, you’ll give up.

No, seriously what about the paying off the highest interest rate first? [2nd answer] Most families pay off their debt in 18-24 months, so the math shouldn’t really make much difference. Behavior change trumps math when it comes to beating debt–Don’t believe me? Read the research.

I still think I should pay off my highest interest rate first. What do you say to that? [last time I promise] Hey, so if you’re really into paying off the highest interest rate first, go for it. Find a system that works for you and stick to it.

What about transferring my debt to 0% balance cards? Realize this is a band-aid to your bigger debt problem, but it can provide some relief. Just make sure the fee (if any) you’re charged for transferring is worth leaving your old card.

I don’t have extra money for my debt snowball, what do I do? You’ve got an income problem. You need to make more money.

What about Payday Loans? If you’ve got payday loans, sound the alarms and work 24-7 until you pay those jokers and never take a payday loan again. Yes, put payday loans at the top of your list no matter the amount.

What about my Mortgage? Save your 1st mortgage till you pay off the rest of your debt down, save your 3-6 months emergency fund, start retirement and kids college savings.

I’ve got a 2nd Mortgage. Should I add this to the snowball? If your second mortgage is less than 1/2 your income, then include it in your snowball.

Should I add to retirement while in debt? If it looks like you’ll be out of debt in less than 5 years, and you still have years to work-then yes. Stop adding to retirement and focus your income and energy towards debt. If it looks like decades before you’ll be out of debt, then you probably have an income problem or a special situation that requires a longer answer.

Where does IRS debt go in the debt snowball? If you’ve got IRS debt, put it on priority and don’t default, the IRS doesn’t play around.

Will I ever be debt free? Yes, keep working your extra job and paying off debt. Need inspiration? You too can pay off $100,000 of debt!

Why not just declare bankruptcy? Bankruptcy is not the cure, its usually a symptom and you’ll find yourself back in debt if you don’t fix your basic budgeting and overspending issues.

Have you used the debt snowball method to get out of debt? 

In Debt
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August Urban Garden Update: Reaping the Fruits of our Labor

Brent Pittman —  08/07/2012 — 6 Comments

Colorful Bell Peppers

Several months ago we started our urban garden on our balcony and we’ve learned a lot about gardening basics. We’ve battled disease and bugs and are coming out on top.

Now, we’re enjoying the fruits of our labor with yummy vegetables. I thought I do a quick analysis on how much money we’ve saved so far.

Original Expense

Here is a summary of our original expense that we used from our tax refund.

  • 1 larger planter + tray and hanging pot $30
  • 5- 5 gallon buckets and trays $40
  • 4 large bags of dirt  $36
  • Plants, bulbs, and Herbs $20 (so cheap!)
  • Gardening Tools: $18.50
  • Total $144.50 +tax

Garden Production

We keep track of course. If you pick a veggie, you’ve got to add it to the chart on the fridge.

  • Squash & Zucchini- 1 (3 on the vine)
  • Potatoes- Only 7 and those plants are now dead, but we hope to make tubers out of other smaller potatoes to start again.
  • Bell Peppers- These 6 plants are doing great. We’ve eaten 5 peppers and there are more on the vine ripening and others still producing.
  • Onions, Mint, Basil- #FAIL
  • Cherry Tomatoes- This is the champ so far. 58 cherry tomatoes with dozens more to go.
Potatoes from Urban Garden

New Potatoes from our garden

Summer Garden ROI

How much have we saved on our grocery bill by having our urban garden? I’ll do a bit of fuzzy math to calculate using this chart to help.

  • Squash & zucchini- Price is listed as $1.50 a pound, so I’m guess only .25 savings.
  • Potatoes- I’m guessing we saved $1.38 on these.
  • Bell Peppers- I’m going with $1.50 each and that might be low, considering we have a variety of colors. Price $7.50
  • Cherry Tomatoes- I found that 38 cherry tomatoes are in a pint  and a pint is $2.53. So it would cost us $3.86 to buy our cherry tomatoes from the store.
  • Total $12.99
  • ROI: Expense $144.50 –  Earnings of $12.99=  -$131.51 (I’m thinking we’ll have a loss this season)

Looking Towards the Fall

We’ve still many veggies left to pick, but I’m already plotting our Fall garden. Any suggestions?

How is your garden going? Have you ever calculated your garden ROI? 

In Urban Garden
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10 Reasons Why Personal Finances Are Like The Settlers of Catan

Brent Pittman —  08/06/2012 — 9 Comments
I hex Catan

Photo Credit Will Merydith (Creative Commons)

If you haven’t played the German board game, The Settlers of Catan, you are missing out.

German board games are all the rage among both geeks and hipsters alike. *Warning they are addictive and make you use your brain.

Even if you’ve never played The Settlers of Catan, I think you’ll learn to win with money by playing this crazy fun game.

What is The Settlers of Catan?

The basic premise of The Settlers of Catan is to be the first to achieve 10 points first. Sounds easy enough.

You’ll gather resources: Wool, Grain, Lumber, Ore, Brick and then use them to build cities & roads, buy cards, and of course trade.

Settlers is a bit like Risk meets Monopoly, but shorter. You’ll be able to play in an hour once you learn the rules. Trust me this a game you’ll want to play over and over again. Check the official rules if you’re super geeky.

 

Catan gameboard

Settlers of Catan Island (Photo Credit ginnerobot)

10 Reasons Why Finances Are Like The Settlers of Catan

The Game Changes- The island is never the same, so each game is unique. Also, the game changes due to the robber or due to the strategy of other players. With personal finance, you’ve got to be ready to change your budget when things come up or changes in your personal economy happen. Be flexible and don’t make epic budgeting mistakes.

Trading with the Bank is the last option- In Catan you’ll be able to made trades with the bank, but at a terrible exchange rate of 4:1. Look for other options with your money than trading with the bank. Avoid debt. Paying with cash is best. Remember the bank is the real winner.

Protect Your Money Making Hexes- In Catan, you’ll find that you’ll have several hexes that are money makers, so you’ll want to protect them from the robber. Have insurance in place for your finance to protect your income and belongs. Make sure you’ve got disability insurance, health insurance, life insurance, ID theft insurance, and homeowners insurance to keep money flowing when bad times happen.

Build a Long Road- Having the longest road will give you 2 victory points. Once attained, it’s tough to keep. Play your financial game for the longest road, not the quick short gain. Invest for the long term 5+ years at least and build a long road toward your financial and life goals.

Winners Barter With Friends- The people who usually win Settlers of Catan are excellent traders. Those who win with money, also play well with others and trade or barter information and even business opportunities. Find people in your life who know how to make and use money properly and soon you’ll be on the fast track to 10 victory points.

Fear the Robber-If the robber is camped out on your hex, you won’t collect cards. Keep an emergency fund of 3-6 months of necessities so you’ll be able to survive when the robber is camped out on your life’s hexes.

Diversify your Hexes (Income)- You’ll need multiple resources to win in Catan. It’s almost impossible to win with sheep alone. Diversify your income with side hustles, dividend income, rental property, or other means of passive income. If one stream dries up, you’ll have other income that continues to roll in.

Teaching Others Will Improve Your Skills- The best way to hone your game skills is to teach your friends or family. I’ve found that as I write and teach others about money, my money skills become sharpened. Find someone to teach and start. Your kids are a great place to begin, since you’ll have to break down complex ideas into their basic building blocks.

City Life Is Good- Upgrade from a settlement to a city will give you 2 points and double the resource cards. City life is good, with more opportunities and higher wages.  If you’re having trouble with your low income, perhaps its time for a move to the city, where more job opportunities lie. It’s hard to budget, when your income is too low.

Invest in Culture- When you buy cards, you might just get a culture card that is 1 Victory point. Invest not only in financial products, but in your education, family, learning, and cultural entertainment. Life isn’t all about money, so make sure to have fun and learn along the way.

#11 Bonus Having Fun Doesn’t Have to Cost a Fortune- A small investment into a family board game will yield compounding dividends of fun and family bonding. Likewise starting a business doesn’t have to cost a fortune and can lead you to follow your passions that solve others problems.

Play Settlers of Catan

If you’re interested in playing this game and supporting this site, feel free to purchase The Settlers of Catan or one of the Catan expansion sets.

Need to learn how to play? Check out this tutorial.

Have you played Settlers of Catan? What life or money lessons did it teach you? 

In Personal Finance, Top Ten List
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Olympic Fever and Rant About #NBCFAIL

Brent Pittman —  08/03/2012 — 4 Comments
Olympic 2012 Mascot

Yes, this is one of the 2012 Olympic mascots.

Have you got it? Olympic fever is here. I love the summer Olympics and am amazed that we humans continue to break records. It motivates me to press on with my goals. How about you?

If you’ve got cable or access to NBC, then you’re able to watch the highlights live streaming or at night. If you don’t have cable or even a TV, then you’re up a creek.

I’m keeping up by reading articles and old YouTube videos. nbcolympicscom also gives a few old videos, but you need a cable provider that has CNBC and MSNBC to access their streaming or archived items. I don’t.

#NBCFAIL

If you’ve follow twitter, you’ll see this hashtag daily. It’s from people like me who feel lied to. We were told NBC would have live streaming…who knew I had to have a cable subscription to watch?

I don’t have cable or a TV and I’m not alone as millions have cut their cable in recent years. This feels like a middle finger from the Big Networks for cutting cable and using alternatives such as Hulu and Netflicks.

There are alternative ways to watch the Olympics by setting up a VPN and stream from the BBC in UK. This does cost money and a bit of technical nohow. Both of which I’m lacking.

Interesting Articles About the Olympics

Not Much Real Gold in Olympic Medals- The real truth about the precious metal content in the Olympic Medals.

What the Olympics Can Teach us About Expensive Hobbies Man vs Debt expands his message of  Sell your crap, pay off your debt and, by so doing, give yourself flexibility to do what you love.

The Cost of Raising an Olympian  Melissa from Bible Money Matters sheds light on the monetary sacrifices of hopeful Olympians and their families.

You’ve Never Said This About the London 2012 Olympics- Funny video by Andrew Zahn and his wife.

Any thoughts about coverage of the Olympics? You feeling inspired to run a marathon? Share your thoughts below! 

Photo credit Stuart Chalmers (Creative Commons)

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In News
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Payoff.com Review: An Alternative to Mint

Brent Pittman —  08/02/2012 — 6 Comments

payoff.com logoDo you need an easy way to pay off debt and track spending? There are so many options out there like Mint or ImpulseSave (read my review of ImpulseSave if you’re interested).

Payoff is a free high quality alternative to Mint that even offers social interaction along with prizes and badges for active participation and meeting your goals.

I’ve been using Payoff for a few months and I’d like to give some feedback and my awesome audience an alternative to the mighty Mint.com.

This is not a sponsored post, just a user who happens to have a financial blog. If money were offered though, I’d gladly accept it. ;-) *Read update below.

My Review of Payoff.com

Payoff is a great tool to take positive financial steps in the right direction. It starts with setting goals and dreams–if you don’t have a reason to do smart things with money, then you won’t get very far.

For all actions you take you earn badges and behind a few of those badges called Sur-Prizes (hidden prizes) I haven’t won any yet, but it keeps me going. Badges works for the Boy Scouts and four square, so it’s sure to keep you motivated too.

There is also the ability to share on social media, which also is an accountability mechanism.-but you want to keep your finances hidden, that is possible.

After you set your goals and dreams you’ll link your financial accounts to its secure site.

*no site in the world is 100% secure, change your passwords on a regular basis)

What I Like About Payoff.com

  • Possibility of Sur-Prizes. Hey, who doesn’t like free stuff?
  • They have a great blog with helpful articles that show up in the dashboard.
  • My weekly email of where my goal progress and snapshot of spending by company. They even match the cool logos of many of the places I shop, so I can tell at a glance where the money was spent.
  • Easy to view dashboard with accounts, suggestions for saving, spending snapshots, and goals tracker.
badges for payoff

Sample badges and possible Sur-Prizes behind them

Areas for Improvement for Payoff

I do have a few suggestions and areas for improvement, but for the most part I think it’s a good alternative to Mint.com

  • One suggestion is that I want to be able to add multiple emails to the weekly email summary.I’d like my wife to be able to receive them too, so we’re on the same page. They need to add additional email fields to do this.
  • I also wasn’t happy that my profile isn’t complete until I pull my credit score. I have no reason to pull my credit score since I pull my credit report a few times a year.
  • Wish there was a badge for being debt free too. I don’t have debt and no plan for getting into any debt…how about a badge for that?
  • There is also a glitch on my savings goals. At times it says I have completed 0% of my goal, but that’s crazy since I’ve already received badges for making progress on my goal. *seems to be fixed now! 
  • Ability to link to investment accounts. If this is a priority for your dashboard, stick with Mint. I prefer to only look at my investment statements once a month so I don’t go crazy and pull all my money on bad days.
  • I would like to see budgeting tools within Payoff. Those who budget, win with money. This is an area where Mint excels and why many continue to use Mint over other tools. *update it’s a planned future component. 

Take a Tour of Payoff

Welcome to Payoff.com – Product Features from Payoff.com on Vimeo.

To sum it up, I’d recommend giving Payoff.com a spin to see if it helps you meet your financial goals. If you’re already a Mint.com user, you might just find Payoff to be a solid alternative . If Mint is overwhelming, then Payoff is right for you! Sign up for free.

*Update: After this review, I had the pleasure of meeting the founders and team at their L.A. office. I was compensated with some yummy Japanese food–thanks guys! From meeting the team I discovered out:

  • They don’t see themselves as competitors with Mint, but rather entry level users–newer to budgeting.
  • There is some budgeting component in the future and that is totally exciting.
  • They are growing, but I promised not to tell any specifics.

Have you used Payoff.com? What did you think? 

In Product Reviews ,
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