Boston Dollars & Sense

Debt Snowballs: Not Limited to Wintertime

I know this sounds like a funny post coming from a financial consultant.  But trust me, the snowball analogy I'm about to make really does relate to finance.

I had to take my dog Haley to the veterinarian's office yesterday (we've gone a lot lately because she injured her head and developed a subsequent infection.)  While we were waiting to see our vet, a woman was paying at the counter for her new puppy's visit.  I think all the standard expenses were being explained to her (initial well visit exam, first inoculations, heartworm test, de-worming, etc.) as she whipped out her credit card to pay for the visit.  In just a short moment, the receptionist handed the card back to her patron, explaining that the card was declined.  The woman then pulled out another credit card from her wallet to see if that one would go through.  It did, and she and her adorable puppy went on their way.

I got to wondering if this woman could afford a new puppy at all.  Anyone who owns a pet knows how costly it can be.  Then my mind strayed further, wondering how well this woman was in touch with her expenses and guessed, maybe incorrectly, that she was a typical American consumer with too much credit card debt.  Sad to think that she may be unable to pay it all off.

OK.  Here comes the analogy.  We remember when we were little kids building a snowball, right?  We start off with a little snow to form a small ball, add more snow, and add even more snow by rolling the ball into fresh snow until we have a great big snowball.

This same process can be used to pay off credit card debt.  Here's how it goes:  on a piece of paper (or Excel) we list the name of the creditor, the total debt owed, the minimum monthly payment, and the interest rate.  We sort the list from smallest to largest amount owed.  We now have a schedule of minimum payments. 

We pay the smallest debt off first.  Once that debt is gone, we apply that debt's monthly amount to the next smallest debt's monthly amount to pay that one off.  To make the snowball even bigger, we throw in any extra, unforeseen money (we finance geeks call this a windfall) into the process to hasten the payoff.  We keep going until all of the credit card debt is paid off. 

It can be so overwhelming to be buried in debt.  if you find yourself in this place, instead of worrying, start dreaming about snowballs!  It's systematic and it works.  And it's actually kind of fun to track its progress.

Credit Markets Have Come to a Screeching Halt

One cannot open the newspaper or watch television these days without learning of yet another major financial setback in the U.S. economy. And the financial crisis has spread to international banks as well. So -- the American woes are now pervading the global economy.

While the recent stock market decline is indeed upsetting, it does serve to remind us to be cautious in these difficult economic times.

In our September 2008 newsletter we discussed what all this has to do with you, some personal tips, and what you may want to do if you own your own business.

See Credit Markets Have Come to a Screeching Halt for the whole story.