When you think of a snowstorm whether a debt snowstorm or some other kind of snowstorm you usually think of one big thing or a dump.
And that’s what I plan to do with my credit card debt. I hope that one day soon I can dump by credit card company and bank like a hot potato, and do it all at once rather than drip by drip, bit by bit… let me explain:
Debt Snowstorm Benefits
I guess at first, I need to explain what the heck exactly a debt snowstorm is. Well as we’re all aware with the Dave Ramsey way, you’re encouraged to start small, pay off the small debt first then apply the big one honkin’ payment to it in one fell swoop. That’s right, just keep keepin’ on with the minimums and do your best to eliminate, or even completely delete your debt or credit card usage. I know some might argue that that a debt snowstorm might make no sense whatsoever and for them, maybe they are right.
But here’s the thing: ( I say that a lot on here, I have noticed). Personal Debt is, well – personal. I’m OK with the snowball approach because in the meantime it allows me to save up a big honkin’ safety net. And call me crazy, but the older I get the more sense fiscal security is starting to mean to me. I look forward to a restful night and believe it or not, the 20 minutes it took me to write about this is one small step in the right direction. If for no other reason, it gets me thinking about my debt. And if it’s in your mind, you’ll do it, or at very least pay attention to your debt.
Back to the debt snowball: Why this works for me is I can save and save and then when my savings get to a comfortable level for me that has a surplus of money (extra money.ha!) then I make one big payment and the debt is gone.
Let’s pretend I have a credit card with a $5000 balance. I keep making the minimum payments over time, about $100 I’m guessing. In the meantime, I manage to make an extra $400 a month, it doesn’t matter how really: sell coffee at night, work at McD’s but at the end of every month I can see extra income, or a surplus in my account. So in a years time I have $4800 saved. Close, but no cigar. I wait another 3 months and save another 1200 and then and only then do I pay off the debt.
Math wise, and for those that need to pay off their debts fast with the least bit of interest paid, this makes no sense.
But it works for me, because over the course of the year or so, I know two things are happening here: one is I’m saving and my savings is growing. This allows me the other item I personally need: peace of mind. Yes, over the course of the year I’m paying too much interest, but every month when my bank account grows in size, I get to sleep at night just a little bit better knowing that should I need to alter my plan due to a life emergency, I have some dough saved. Maybe I get a once in lifetime chance to travel the world for just $1000 for 3 months, or some ridiculous bargain. I would have the money to do so.
I know travelling the world for $1000 is not a need by any stretch but it would be one heck of an opportunity. And the cost would be that I would be $1000 further away from debt freedom, but I got to go on a trip of a lifetime. I’d remember the trip forever, good or bad. I wouldn’t remember the extra 3 months of interest, or payments.
So my preference is for a debt snowstorm payment plan: make minimum’s and save, save, save. Then when your savings account is overflowing with cash that is well above what you owe then with one payment you can dump your credit card. And because you still have a balance in your savings, you have a good start on the next debt snowstorm, if you need it.
One payment and you’re done. That’s the debt snowstorm .
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