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Forget the so-called `logical` way of budgeting.

Posted Nov 14 2008 10:00am

When it comes to paying off credit debt, we’ve learned that logical is not always the best way to go.  We are human after all, not robots.  To pay off $90,000 would simply take for e v e r. So we pay off the first debt, for example, $1,500.00.

We pay it off like this:

  • We sell some maternity clothes on ebay for $200,
  • we sell one of the cars - no payments ($400/ month)
  • no insurance on sold car ($50/month)

This Equals = $200 (one time payment) + $450 (increased monthly cash flow), which means that first debt ($1,500) is paid off in 2 months.

Now we have one debt gone (but it had the smallest interest rate, let’s say.)  And we have our regular “small debt” payment (somewhere around) $30 + $450 = $480.  You have $480 MORE MONEY in monthly cash flow.

This is called the snowballing effect.  You take this $480, add it to your next highest debt  - let’s say its $5,000 with a minimum payment of $120.00.  Now, instead of $120 paid off per month (which only covers the interest) you can pay off $480 + $120 = $600 every MONTH.  You see where this is going???  DEBT FREE-NESS. When this is paid off you can take that $600 and add it to the minimum payment of the next debt, and so on.  With the snowballing effect you pay your debts off faster, and you also SEE RESULTS which us humans, tend to need.

Cut up the cards, is one lady`s journey to do just that.

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