Wednesday, November 09, 2005

Debt Snowball ... You want me to do What?!


Here's my dilemma. We had some money saved, about $6000, and I knew from reading Dave Ramsey's Total Money Makeover that all but $1000 should go to our credit card debt ... but I just couldn't bring myself to do it!

I knew that we were upside down financially. I knew that we were paying much more in interest to the credit card company than we were receiving in interest from the credit union savings account, but I had an emotional/psychological block to sending most of that money to the credit card company.

That money was our safety buffer. It wasn't just money for emergencies, it was an emotional safety net. It felt like much more than it actually was. Intellectually, I knew it was just money for emergencies, but emotionally, it felt like Freedom, Safety, and Security.

Dave Ramsey's concept of debt reduction made sense to me. (Loosely paraphrased)

Put your debts in order of smallest to largest. Pay the minimums on every debt except the smallest. Pay every spare penny, excluding $1000 for an emergency fund (which meant $5000 of the $6000 we had saved) toward the smallest debt. Once that was paid off, take the payment from that one (plus every spare penny) and add it to the next smallest debt. And so on...
(end of paraphrase)


The 'Debt Snowball' was fast, effective, and designed to quickly put you back on the right track financially. It had a built-in psychological reward. Paying off the smallest debt first was quickly done, in most cases, and sure to reward you emotionally. But my emotional security zone was sending up red flags when I just thought of sending that money to the credit card company.

The emotional part of me was saying things like, "I know our debt has to be paid, but once that money is gone, it's gone. It'll take forever for us to save that much again!"

Well, I stewed about it, talked about it with my partner, searched the internet for help, and read everything I could find to help me get past the emotion of doing what was probably the right thing to do, financially. But I just couldn't.

So, what did I do? I found some easy ways to make $160 (more on how I did that here) and sent it, along with $550 of that $6000, to the credit card company.

Yeah, I cheated on the Snowball Debt reduction plan. I only took 9% of a baby step (Dave Ramsey's Baby Steps), but I am knocking out my credit card debt and keeping my emotional safety net all at the same time. No Regrets and Contentment with my decisions ... are my first priorities.

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