By Bunmi Olayanju, MBA
According to financial expert and author, Dave Ramsey, “the average family completing Financial Peace University (FPU) pays off $5,300 and saves $2,700 in the first 90 days.” The debt snowball is a central component of the FPU curriculum. Do you have any outstanding debt you’d like to pay off? That’s where the debt snowball comes in. It is a proven, systematic way of eliminating debt. The debt snowball method provides much needed momentum on the journey to debt freedom by enabling the practitioner to pay off their outstanding debt, starting from the smallest to the largest. As debt after debt is paid off, the snowball grows in size over time and ultimately leads to total debt elimination.
As a member of the Financial Empowerment Ministry at Christ Church, I have had the privilege of teaching courses on money management and working with individuals on eliminating debt using the debt snowball method. Reflecting on these experiences, I offer 4 practical steps for applying the debt snowball method:
People tend to underestimate how much they owe and the true cost of borrowing money. How much do you owe? I’m not expecting a response but do hope you know the answer. If you don’t, this is a no-judgment zone. The average person does not know the answer to this question but it’s not difficult to find out. Using the Debt Summary Form on ChristChurchUSA.org/1322, you can create a snapshot of your debt position. The debt snowball works best with specifics. Knowing how much you owe helps you set a clear objective regarding how much debt you are working to eliminate, while using the debt snowball method.
One major requirement for successfully applying the debt snowball is to stop borrowing money. As Dave Ramsey said, “You can’t borrow your way out of debt.” It’s important to have a prepared response when presented with the opportunity to overextend yourself. For my family, that prepared response is an emphatic “No.” As a family, we consciously make financial decisions to keep debt at bay. For example, there was a time my wife and I shared one car until we could conveniently afford a second car. Until your commitment to living debt-free is stronger than the lure of easy credit, debt freedom will remain a mirage.
“You can’t borrow your way out of debt.”
Dave Ramsey, financial expert and author
Paying more than the required minimum puts you in the driver’s seat and over the life of the loan, reduces the cost of borrowing. Oh yes, borrowing money is costly and the longer it takes you to pay off the loan, the steeper the cost. A friend of mine is an Ivy league-educated dentist. By the time he completed his training, he had accumulated well over $100,000 in student loans. He was intently focused on eliminating this mortgage-sized student loan as quickly as possible. He worked extra hours and devoted the extra income to debt reduction. He deferred buying a home and wouldn’t even hang up his diploma until his student loan was paid off. To his credit, he got it done! Now, he has a thriving practice and proudly displays his diploma without any cloud of outstanding student debt hanging over his head. Don't wait for a major financial windfall to start making extra payments. Even an extra $50 payment per month could make a big difference over time. Consistently chip away at the mountain of debt by making extra monthly payments and watch the debt shrink.
Revolving debt such as credit card debt is one of the most difficult to eliminate because it is not term-based. It’s easy to keep revolving and revolving, making payments but seeing no progress unless you draw the line by setting a get-out-of-debt date. The good news is that there are online debt payoff calculators that you can use to set a personal get-out-of-debt date. I have included links to a few of these applications at the end of this article. Using these applications, you can simulate various debt payoff scenarios and develop a preferred personal debt elimination plan.
Let 2020 be the year you kick debt to the curb permanently. When you know how much you owe, stop borrowing money, regularly pay more than the minimum, and set a get-out-of-debt date, you put your debt on notice—and the countdown to your debt payoff is on. Go ahead, apply the debt snowball method and you’ll be well on your way to debt freedom!
Are you ready for debt snowball to change your financial future? The following websites offer free debt payoff calculators. Using these applications, you can simulate various debt payoff scenarios and develop a preferred personal debt elimination plan.
https://www.crown.org/resources/debt-snowball-calculator/
https://unbury.me/
https://undebt.it/debt-snowball-calculator.php
By Bunmi Olayanju, MBA
Bunmi Olayanju is a personal finance professional with extensive experience in the consumer financial services space. He holds an MBA in Finance and the Chartered Financial Analyst (CFA) designation. Bunmi is passionate about helping people take control and make sense of their financial lives. He is the author of Debt-free for Life, a very practical book that provides actionable steps for individuals looking to dump debt permanently. He is also a member of the Financial Empowerment Ministry at Christ Church.