Baby Step #2 – the “Debt Snowball”

As we continue our journey to “Financial Freedom” we will introduce Baby Step #2 – the Debt Snowball, as taught in Dave Ramsey’s Financial Peace University class.

Just like with anything else in our lives, career, marriage, parenting, education, we must develop a plan if we want any chances of success.

The bible says in Luke 14:28-30, “For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it? Lest haply, after he hath laid the foundation, and is not able to finish it, all that behold it begin to mock him, Saying, This man began to build, and was not able to finish.” KJV

A plan is extremely important when handling God’s resources which He has entrusted to us. When we live God’s way we can trust the He will guide us to live His will.

In Baby Step #1 we saved $1000.00 for an Emergency. This money is for true blue emergencies only, make sure you are locked in with that mindset, or the plan will not work.

Now we can move on to Baby Step #2.

This step is designed to get you out of debt as quickly as possible. Just imagine how much you can give, save, spend and invest if you didn’t have any payments.

To set up this Step you will want to list your debts, all of them, minus your mortgage, (we will get to that in a different Step), smallest amount owed to the largest, regardless of the interest rate.

Then you will pay the smallest debt off as quickly as possible. Once that one is paid off, you can then concentrate on the next debt, rolling all of the payments you were making in the previous debt into the next target.

Keep rolling your previous debt payments into the current debt target until all your debt is gone and you are ready to move to Baby Step #3.

This method causes all of the math folks a fit, however, this method is used to achieve quick victories, therefore ensuring that you stay on track. For example if you have a debt of $3,000.00 that has a 29% APR and a debt of $1500 with an 6% APR, you will pay off the smaller balance to get that quick victory. You are more likely to stick to the plan if you allow yourself to knock off some financial weight quickly, versus taking 5,6 or 7 years to knock out a larger debt.

This will only work if you want and do everything it takes to get out of debt. Work hard, make a plan and stick to it and you will win. If you decide to take your time and stay in debt for a long time, this will not work and you will have to find a different plan.

Go to the following link: www.daveramsey.com to get a free copy of the Seven Baby Steps.

Also, we suggest going to www.iwbnin.com to download a free “ZERO” based budget form developed by Joseph Sangl. This is a great tool to plan your spending, before the month begins, instead of wondering where your money went at the end of the month.

That is all for now. Let’s get those Baby Steps Rockin’ and Rollin’ and allow God to do great things in our financial lives.