Baby Step 2: The Debt Snowball

Moving into the new year brings a new baby step for us! We've put our $1000 into savings...it took longer than we had anticipated but we are ready to move forward now!

For those of you that haven't read Dave Ramsey's books (which I highly recommend!), this second step is all about paying off debt. You write down all of your debt, excluding your house, in order...smallest balance should be your number one priority. You don’t worry about interest rates unless two debts have similar payoffs. (If that’s the case, then list the higher interest rate debt first.)

"The point of the debt snowball is simply this: You need some quick wins in order to stay pumped up about getting out of debt! Paying off debt is not always about math. It’s about motivation. Personal finance is 20% head knowledge and 80% behavior. When you start knocking off the easier debts, you will see results and you will stay motivated to dump your debt." Dave Ramsey

We've listed our debt in order from smallest to largest. Here is how it breaks down...

1-Reliance Urgent Care: $151.34
2-Sam's Club Credit Card: $309.44
3-Mercy Medical: $1,052.90
4-My Parents: $3225.00
5-American General: $4518.46
6-Wells Fargo Credit: $5000.00
7-Chrysler Financial: $26,371.32

(This does not include our house. We do hope to sell our house but if not we'll have a step for paying it off later on down our Total Money Makeover road.)

Now starting this month we will be putting as much as we can towards paying off the smallest debt, while paying the minimum on all of our other debt. Jason and I have already made our budget for the month which includes paying off our first two debts! Yep you read right...we will be writing a check to Reliance and Sam's Club Credit for the full balance we owe!! Then we get to close our Sam's Club Credit account and put that debt behind us!!

In February we get to roll the minimum payments we were paying on those first two debts to the third debt, my parents, along with the payment we've been paying them monthly. That should triple the payment we have been paying, which puts us paying the third debt off completely in April!!

See the snow ball effect working here?!? I do!! **Note the squeal here!** I've been waiting for this step and now that it is here I can already see the difference it is going to make in our lives!

I will give updates as we pay off debt during this second Baby Step.