The Dave Ramsey's Debt "Snowball" Method

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I attended the second series of financial workshops by the Richland County Public Library. "Budgeting and Saving" was presented last night by Newberry College Professor Paul Smith. After his seminar I decided to make one change.

I decided to go with the Dave Ramsey's Debt "Snowball" Method. I rearranged my payment plans so that I pay only the minimum on my two highest credit cards and all my extra money (part time jobs, unexpected money windfalls) are going to my largest credit balance. My highest should be paid off by December this year.

I've always heard about the "Snowball" method, but didn't like the fact I was only paying the minimum on my credit cards except the one with the highest balance. Psychology wise I could understand why the method works. It gives you the momentum to know you can do it, that you reached a goal, and can claim, "Yes I PAID off this card, now on to the NEXT".

Dave Ramsey's Debt Snowball Method: You start with your lowest balance and pay as much extra as you can over the minimum while on all your other balances you pay only the minimum. I made up the scenario below:

Credit Card                     Owe                      Min.                     Pay                Paid off after
Discover                            $340                     $20                        $40    8 1/2 months ($340/$40)
MasterCard                       $545                     $30                        $30
American Express             $620                     $35                        $35
Department Store              $980                     $50                        $50

After 8 1/2 Months
Credit Card                     Owe                      Min.                     Pay                Paid off after
Discover                           Paid                    
MasterCard                       $305                     $30                         $70    4 Months of paying $70
                                                                               $30 + $40(What you paid on Discover Card)

American Express             $340                     $35                        $35
Department Store              $580                     $50                        $50


After 12 1/2 Months
Credit Card                     Owe                      Min.                     Pay                Paid off after
Discover                           Paid                    
MasterCard                       Paid                    
American Express             $200                     $35                        $105   2 Months of paying $105
Department Store              $380                     $50                        $50

After a Year and 2 1/2 Months
Credit Card                     Owe                      Min.                     Pay                Paid off after
Discover                           Paid                    
MasterCard                       Paid                    
American Express             Paid                   
Department Store              $280                     $50                        $155            Almost 2 Months

Debt FREE after a Year and 4 Months!!!

You can then put that $155 you have been paying each month toward credit cards into your savings or Emergency fund so your credit cards won't be used as much or contribute more for Retirement. You can finally contribute to a 403b, Roth 403b, or Roth IRA with ValuTeachers if it is offered in your area. Go to ValuTeachers.com to learn more.

I would love to read your comments about the Dave Ramsey "Snowball" method.

Being Impatient With Your Money

You are looking at your quarterly statements and see over the past few years your 401(k)/403(b) is growing BIGGER AND BIGGER. You may start looking at what you can do NOW with that money. Vacation to Europe, new car, or your child's education. "Hey I have years before I retire".

But wait, what is the cost of you being Impatient!! You are not 59 1/2 years old, so you have to pay 10% in penalty charges and ordinary income tax. In the case of 403(b)/Roth 403(b) annuities you have to pay surrender charges. You can use  the withdrawal as a loan, but have to pay it back within a certain period of time (usually 5 yrs) plus interest.

That's money you have taken out that is no longer generating interest and compounding interest (interest on top of interest) for you. Instead of maybe $300,000 at the full retirement age of 67(if you are born after 1959), you may have $200,000. A big difference when people are living more into their 80's and 90's (at least 20 years in retirement).

However, there are certain instances in which you can get access to your money with minimum penalty, including hardship for unemployment and eviction from your house, if there is no other resources.

Read more  Rules for Early Withdrawal from a Retirement Fund

What are your thoughts on early withdrawal of your retirement fund? Are you impatient when it comes to your retirement fund?

Rhonda W.