# How the Debt Snowball Method Works

Lets start 2014 with a Bang! Eliminate those debts! đź™‚

When you were a kid rolling a snowball in the backyard, the best way to do it was to pack some snow into a tight ball, then start rolling it through the yard. Your snowball would become a snow boulder much quicker than it would if you just built it up by hand. Thatâ€™s exactly how the debt snowball method works.

The debt snowball is perhaps the most life-changing Baby Step you’ll experience in your total money makeover. Once youâ€™re on Baby Step 2â€”that means you are current on all your bills and have your \$1,000 starter emergency fund saved upâ€”list your debts smallest to largest by amount owed.Â Don’t worry about interest rates. We don’t care if one debt has a 2% rate and another one has a 22% rate.

Now it’s time to make progress.

Pay minimum payments on all of the debts except the smallest one then attack that debt with a vengeance. We’re talking gazelle intense, sell-out, get-this-thing-out-of-my-life-forever energy. Once itâ€™s gone, take the money you were putting toward that debt, plus any extra money you find, and attack the next debt on the list. Once itâ€™s gone, take that combined payment and go to the next debt. Knock them out one by one.

Hereâ€™s an example. Let’s say you have the following debts:

• \$500 medical bill (\$50 payment)
• \$2,500 credit card debt (\$63 payment)
• \$7,000 car loan (\$135 payment)
• \$10,000 student loan (\$96 payment)

With the debt snowball, list the debts in that order (remember, ignore the interest rates). Start by making the minimum payments on everything but the medical bill. For this example, let’s say you find an extra \$500 each month by taking an extra job, slashing your lifestyle to nothing, and going crazy. That’s very doable.

Since you are paying \$550 a month on the medical bill (the \$50 payment plus the \$500 extra), that medical bill won’t even last a month. Now, take that \$550 and attack the credit card debt. Youâ€™ll be paying \$613 on the plastic (the freed-up \$550 plus the \$63 minimum payment). In about four months, wave bye-bye to the credit card. Youâ€™ve paid it off!

Now weâ€™re at the car debt. Punch that car note in the face to the tune of \$748 a month. In 10 months, it will drive off into the sunset. Now youâ€™re on fire!

Once you’ve gotten to the student loan, you will be putting \$844 a month on it. It will only last about 12 months. After that,Â Sallie Mae better get used to living somewhere else, because youâ€™ve kicked her out!

Thanks to your hard work and sacrifice, you haveÂ paid off \$20,000 in debt in only 27 monthsÂ using the debt snowball! Congratulations!

The point of the debt snowball isÂ behavior modification. In our example, if you start paying on the student loan first because it’s the largest debt, you wonâ€™t see it leave for a while. Youâ€™ll see numbers going down on a page, but thatâ€™s it. Pretty soon, youâ€™ll lose steam and stop paying extra, but youâ€™ll still have all your debts hanging around.

But when you ditch the small debt first, you see progress.Â That one debt is out of your life forever.Â Soon the second debt will follow, then the next.Â When you see that the plan is working, youâ€™ll stick to it.Â By sticking to it, youâ€™ll eventually succeed in becoming debt-free!

The only time you might make an exception to the debt order is if one of the debts is to the IRS. You do not want them in your life, so it would make sense to move a tax bill up in priority. Once itâ€™s gone, proceed with the debt snowball like normal.

By the time you are paying on the bigger debts, you have so much more cash freed up from paying off the earlier debts that it creates a â€śdebt snowballâ€ť effect. You are putting hundreds of dollars a month on your bills instead of a few bucks here and there. You build momentum, which changes your behavior and helps you get out of debt and stay that way.

Ready to work your own debt snowball this year?Â Weâ€™re here to help.Â Here are four ways we can help you get to where you want to be.

# Staying Free

~i’m passionate about staying and being debt-free. this is a great article for those who needs that BiblicalÂ motivationÂ to not be slaves to the lenders. enjoy. đź™‚ [Picture is not mine]

The rich rules over the poor, and the borrower is servant to the lender.
Proverbs 22:7

If a new “toy” caught your eye — boat, car, a recreational vehicle of some sort — but the cost was beyond your reach, how would you respond to this offer from the salesman: “I can work out a way for you to make the purchase, with only one stipulation: You and your family will become my slaves for the duration of the six-year loan. It won’t be that bad. It just means you’ll have to get my permission before you spend any money — even a penny — for the next six years.”

What would you do? Without thinking, we enslave ourselves every time we borrow money to buy something we actually can’t afford — if we believe Proverbs 22:7 (NIV), that is: “the borrower is slave to the lender.” WeÂ wouldn’tÂ think of letting someone enslave our family, but Proverbs 25:28 suggests how it happens: “WhoeverÂ hasÂ no rule over his own spiritÂ is likeÂ a city broken down, without walls.” Lack of self-control in any area invites others to enslave us. Without self-control, we buy what we can’t afford. With the resulting debt, we enslave ourselves to the lender.

Ask God today for the protection of self-control when it comes to spending, and for the resulting freedom to be no one’s servant except His.

The alternative to discipline is disaster.Â
Vance Havner

# Not planning to buy health insurance? Here’s what going to happen to you:

A great article for those who has decided to skip buying health insurance come January 2014. I hope you find this article helpful. Let’s not live in ignorance and get all of our facts straight. I’m quite sure that God wants the best for you in ALL things. He wants you to have an abundant life, not a life trapped in medical debts.

Article ByÂ

It may seem like a clever idea to save yourself cash by not purchasing health insurance, but with Obama-care kicking in, youâ€™ll have penalties to pay, which could cost you big bucks in the long run.

Not only are you playing financial Russian roulette â€“ you could be forking out tens of thousands or hundreds of thousands of dollars if youâ€™re injured in an accident or become seriously ill â€“ youâ€™ll also have to pay a penalty to the federal government for flouting the law, costing you hundreds or thousands of dollars more.

A wiser decision if youâ€™re uninsured is to start shopping on your state healthÂ exchange, which openedÂ Tuesday â€”Â with glitchesÂ â€“Â as a key part of health care reform.

Itâ€™s OK if you feel at a loss about the Affordable Care Act, which is also known as Obama-care. Youâ€™re not alone. A newly released survey by theÂ Commonwealth FundÂ found that only 4 in 10 adults were aware of the health exchanges and the financial subsidies available to help cover costs when you buy insurance there, and only one-third of those without insurance were aware of the new way to shop for health insurance.

InÂ the first quarter of the year, 46 million Americans didn’t have health insurance, according to the U.S. Centers for Disease Control and Prevention. The establishment of the state health exchanges, or insurance marketplaces, is designed to reduce the number of uninsured.

### Who needs insurance?

Starting next year, almost everyone will need to be insured. You can purchase that insurance on your own or through the exchange, have it through your employer, or have it provided by governmentÂ programs such as Medicare, Medicaid, the Childrenâ€™s Health Insurance Program, TRICARE and veterans health insurance programs.

There are some limited exceptions, such as for those who earn a very low income or are members of certain religious groups, as shown in this graphic by theÂ Kaiser Family Foundation.

While you can start shopping for insuranceÂ on a state exchange now, the policies donâ€™t take effect until Jan. 1.

### What if I donâ€™t buy insurance?

If you skip the insurance, youâ€™ll pay a penalty. For 2014 the fine is \$95 for an individual or 1 percent of your income, whichever is greater, along with \$47.50 per uninsured child, maxing out at \$285 for the year.

But by 2016, an individual would pay \$695 or 2.5 percent of your income.

TheÂ TurboTaxÂ websiteÂ has a calculator to help you determine how high a penalty youâ€™d pay.

Without insurance, youâ€™d also face a double whammy. By 2016 youâ€™d be forking over almost \$700 to the federal government and having nothing to show for it, and still have to pay your own medical bills if youâ€™re injured or become ill.

### What will insurance cost?

The exchanges will sell four levels of policiesÂ â€“Â platinum, gold, silver and bronze. Bronze plans will have the lowest premiums, but cover only 60 percent of costs. Platinum, on the other hand, will have the highest premiums, but cover 90 percent of costs.

If you earn up to 400 percent of the federal poverty level (\$45,960 for an individual and \$94,200 for a family of four this year) youâ€™ll be eligible for a subsidy, which will come in the form of a tax credit. Subsidies are based on your family size and your earnings. The less you earn, the higher the subsidy.

With the subsidies, more than half of Americans should be able to find health insurance for less than \$100 a month, according to the U.S. Department of Health and Human Services, although you might choose to pay more.

There also will be caps on out-of-pocket costs. Typically, the maximum an individual will pay in co-payments and deductibles next year is \$6,350, and a familyâ€™s costs will be capped at \$12,700.

### What if you delay?

Because you canâ€™t be turned downÂ for health insurance under the Affordable Care Act if you have a pre-existing condition, you might be tempted to dawdle and see if you actually get sick before purchasing insurance.

But that strategy could easilyÂ backfire.

Youâ€™ll only be able to buyÂ insurance on your state health exchange through March 31, 2014. After that, theÂ open enrollment period will run from Oct. 15 to Dec. 7 each year.

There are exceptions that allowÂ you to purchase insurance on the exchange at any time of the year if you experience a life-changing event, such as moving to a new state, getting married, getting divorced, orÂ having a baby.

While you can purchase insurance outside the exchange at any time, you wonâ€™t be eligible for a government subsidy, which is one of the cornerstones of health reform.

Bottom line: Ponying up for health insurance now can potentially save you from astronomical costs down the road.

# 7 Types of People Keeping You in Debt

~picture is not mine

A great article for those who are trying to beat the odds by winning the battle of becoming debt-free. That’s one of my goals in life: to be debt-free. I hope you find this article helpful and enjoyable. đź™‚

People.Â Sometimes you love â€™em,Â and sometimes you donâ€™t want to be anywhere near â€™em.

When it comes to your money, people can be a wonderful influenceâ€”like Dave Ramsey or your grandmother who never took out a loan her entire life, even for those overpriced dentures she bought.

But people can also drag you down. They might look at you trying to improve your life and do everything they can to rain on your parade or make you feel stupid and out of touch.

You know those people. And while you might love them and care a lot for them,Â their negativity can eventually wear you down.

So who are the types of people youâ€™re looking out for?

Some examples:

He leases a new car every two years. Heâ€™s tried to pull you into some wacky multi-level scheme at least three times. He somehow convinced you that your couch in the basement would be a perfect place for him and your sister to stay â€śfor just a couple of monthsâ€ť while he looked for a job.

That was a year ago. And heâ€™s still looking.

If your parents donâ€™t understand why youâ€™re working so hard to get out of debt, then itâ€™s best to just avoid the topic of money at Thanksgiving dinner.

On the flip side, few things in life are as irritating as a â€śboomerang kidâ€ť whoâ€™s 27 and unemployed and has permanently taken up residence on your couch. You know what a boomerang kidâ€™s financial advice might be?Â â€śHey mom! Give me a money!â€ť

These â€śkidsâ€ť are like overgrown financial leeches who thrive on video games, Dr Pepper andÂ living off your income.Â Look, we know you love your kid. But love them enough to push them off the couch and into a job. Give them a time limit to find their own place and stop mooching off mom and dad.

Youâ€™d be surprised at how many of those friends are going into debt to have all that fun.Â Theyâ€™ll be paying later while your fun is just getting started.

### 5. Your college professor from 10 years ago (or now)

You can just hear his Ben Stein-ish voice right now, canâ€™t you? He might have told you about adjustable rate mortgages or car leases or whole life insurance.

You bought that advice at first. You were young and naive.Â But now you should know better.Â When you hear that voice telling you how much sense it makes to take out an adjustable rate mortgage (â€śthe interest rates are great!â€ť),Â think about Dave Ramsey saying, â€śDonâ€™t be stupid!â€ť

If anyone takes the governmentâ€™s advice on how to manage money, God bless their soul.Have you looked at our national debt lately?Â But every day, youâ€™ll hear a politician go on and on about balancing the budget, paying off the national debt, and being more responsible with money.

The only thing that grows faster than our national debt is our national spending.Â So when you hear someone in D.C. give money advice, press the mute button.

### 7. Marketers

Look, thereâ€™s nothing wrong with marketers. We have a lot of them here on Daveâ€™s team. But if you aren’t responsible with your money,Â good marketers can talk you into buying anything.

Thatâ€™s why credit card companies make billions of dollars.Â They are extremely smart, and they know what theyâ€™re doing. If you stick to only buying what you can afford, then marketers will never get the best of you.