Friday, February 29, 2008

Debt Snowball Plan

Yesterday I announced we're going XSTREAM with our plan to pay off debt. Until the debt is gone, we're going to be as tactically creative as possible and maneuver our way to debt freedom with, as Ramsey likes to say, gazelle intensity. I am just not messing around anymore.

The overall strategy is called The Debt Snowball:

  • List all debts in ascending order from smallest balance to largest. This is the method's most distinctive feature, in that the order is determined by amount owed, not the rate of interest charged. However, if two debts are very close in amount owed, then the debt with the higher interest rate would be moved above in the list.
  • Commit to pay the minimum payment on every debt.
  • Determine how much extra can be applied towards the smallest debt.
  • Pay the minimum payment plus the extra amount towards that smallest debt until it is paid off.
  • Then, add the old minimum payment from the first debt to the extra amount, and apply the new sum to the second smallest debt.
  • Repeat until all debts are paid in full.

In theory, by the time the final debts are reached, the extra amount paid toward the larger debts will grow quickly, similar to a snowball rolling downhill gathering more snow (thus the name).

I figure, in order to really speed away from our debt, the are prerequisites which we have all ready implemented: 1) Quit borrowing money, 2) Save the $1,000 for immediate cash reserves, 3) Create a zero based budget and following it monthly.

Here's our situation. But first, do you think I am nuts for sharing all this with you and the world on the internet? I figure, it's all public information anyways if bankruptcy ever happened. it makes it easier for you to feel free and hold me accountable at any given moment (you probably could have fun with that). So here's the shameful truth:
  • $17,100 of consumer debt (i.e. credit cards, medical bills, etc.)
  • $25,900 on a home equity loan.
  • The debt snowball plan then is going after $43,000 total debt.
  • The minimum payment is $840. Ouch!, that's insane but it's true. One of the best things about going through FPU is that reality wakes you up.
Our first leap toward gazelle intensity:
  • Apply $485 extra each month from family budget. This makes the total monthly contribution to the plan to be $1,325.
  • All gifts and other blessings in the way of unexpected cash inflow will go directly to the plan.
This plan will get us to debt freedom in Dec 2010. Yesterday I got this crazy idea that we'll increase the intensity and strive to be debt free a whole year earlier - this will really stretch us but force us to be insanely (and hopefully brilliantly) creative. It will be fun! For example:
  1. I am strongly considering taking on another job. I would like to do something for the next 6-8 months. What's holding me back is the lost time with my family. I am not ready to leap into this one yet but I am dreaming about it.
  2. Keep selling things.
  3. Raise money. This is the one thing I think is completely insane. Ask people to chip in, to give me money to help me pay off my family's personal debt? Did you notice the little red widget on the top of the right side bar of this blog? I set an objective of $15,000 by Dec 31, 2008. Let's see what happens. This amount would take an entire year off the plan I described earlier. I do plan to "earn it" in sense. I am going to do the best I can to provide meaningful information on this blog. I am going to increase the intensity of the value of this blog. Yes, it's insane. I won't be constantly pleading for money. I am not even really asking for money right now. This is only a small part of my plan and it's an experiment.
I have to run. I sold something on Craigslist yesterday and I need to get it ready for the guy coming at 10:30. Another $400 to the plan!!!


Jason said...

This is great! You have come along way since your first post on 1/14.

You should jump over to and let them know you have updated your blog. They will provide a lot of support and encourgement.

Jeff Burton said...

This is so crazy, it just might work!

Kim N. said...

You rock! From what I know of goal setting you will more likely reach your goals if you share them with people. You are on your way. I am sure you will be successful! Tim and I need to get going on our own "Xstream" plan.

Carla Stream said...

Go Nafes Go!! Let's plan the Debt Free Dance Party!