Friday, June 08, 2007

New Debt Snowball Plan?

Everyone who is involved in personal finance knows about the idea of debt snowballing. Well, this process has worked quite well for me lately. I've maintained a chart over at <a href=" http://www.ncnnetwork.com">No Credit Needed</a> and I find that it works quite well as a means of keeping track of my debt reduction.

I've made posts before on how I dislike student loans and the process and how my particular situation was handled. I graduated with tons of student loans and even after consolidation, there were too many bills and they cost me way too much in interest and there was no one there to be an advocate for me. But now that things are going well, household spending is under control and the emergency fund is growing steadily in a high-yield account over at ING (submit your email on the right for a link to open an account and get a bonus), I've realized that the finish line really is not that far away.

About 18 months ago, I got really serious about personal finance. I knew the principals already, but practicing them was another story altogether. Now, things are a very different story. Instead of scraping by each month, there is money to spare even after savings and funding the e-fund. Right now, I am considering something drastic: stopping all regular contributions to the e-fund and savings accounts.

Originally, if I simply pay all bills at the current rate without accelerating at all, my final payment for student loan #3 at the bottom of this list will be paid in 20 years when I am 47. This makes me scared and angry all at the same time. So, I'm wondering if it might not be a bad idea to simply try to divert all money to these debts now that there is some cushion in the savings.

1246 (3 months) - student loan 1 paid
1446 (3 months) - car 1 paid
1746 (6 months) - student loan 2 paid
1946 (6 months) - car 2 paid
2396 (10 months) - student loan 3 paid

zero debt other than mortgage = 28 months (less than 3 years just after age 30).
 = 62,628 dollars of debt in less than 3 years.

This plan feels too drastic and over-dramatic for me so I will probably not be doing it. On the other hand, if there are any emergencies that come up, I could simply push the plan back by a month and use that month's payment to handle the emergency. So maybe it isn't that bad of an idea.

I still probably wont do it though. But just seeing that there is the potential there to do it is amazing. I've felt trapped by that student loan 3 for quite some time. Now it doesn't seem like such a big deal.

1 comment:

Marc Brown said...

Hi, you have greatly described how debt snowball has helped you attain respite from your student and car loans. It's far apart from idealistic models and depicts actually practical results. I guess debt snowball is a very famous concept developed by Dave Ramsey, right? Well, I used to have different beliefs than dave Ramsey in this regard. I felt that if you start with the lowest one, then the highest outstanding balance would increase at a higher pace. I completely disagreed the theory of self-confidence, which is the prime motto of debt snowball method. In fact, few days back, I came across an article on web http://www.ovlg.com/debt-free.html secrets of a debt free life which also included this theory there. Well after analyzing your mathematics, I now think there must be something in the theory that helped you attain debt free status.