April 6th, 2015
Oh my gosh, hi. It's been 17 billion years since I've written you and for that I am so sorry. And because of that I have about 17 billion thoughts and I am going to do my very best to keep them from word vomiting all over the page. (Too much?)
Here are the basics:
I am still enduring Baby Step 2, and will continue to do so for at least the next year and a half. And it's awesome. I've realized that many of you may not even know what Baby Step 2 is and that we also call it The Debt Snowball. So let's talk about it.
The Debt Snowball calls for you to take each of your debts and line them up from smallest payoff amount to largest. You do not need to line them up from smallest interest rate to largest, or least favorite to most favorite, etc. Face those suckers head on for what they are and let's go. Here's an example:
Loft Credit Card - Payoff: $1,500//$80 minimum payment
Personal Loan: - Payoff: $1,650//$150 minimum payment
Visa Credit Card - Payoff: $2,500//$60 minimum payment
Auto Loan - Payoff: $16,000//$330 minimum payment
So as we start our snowball, things seem a little slow and pretty anticlimactic because we will just truck along and pay only our minimum payments for each debt. However, your goal is to tackle this total debt payoff with gazelle like intensity (as in a-gazelle-being-chased-by-a-cheetah like intensity) which means any extra money that you can find should be thrown at the top payoff total. Once you pay off that first debt (and do your get-behind-me-devil-debt happy dance), you will take that minimum payment and add it to the next one. In our example, the minimum payment for the 2nd debt - the personal loan- would go from $150 to $230. That new minimum payment along with any money you can spare will get that second debt paid off in no time. And then you add that new $230 minimum payment to the third debt's minimum payment and so on and so forth. So basically, whatever total amount you're paying in minimum payments now (Hi, for me it's $724, every single month. Ouch, right?) you will continue to pay that same amount until you're debt free. Make sense?
One thing you should NOT do, no matter how logical and financially beneficial it seems is to lump your debt into one sum. Sure, this may seem like a good idea because it will lower those interest rates (interest rates were bred of the DEVIL), but you should not do this because it will mess with your pretty little head. You NEED those small victories of paying off $1,500 here and $1,650 there. They pump you up and motivate you and make you do happy debt dances through your house (for me, this looks a lot like Zumba, naturally).
You see one debt disappear and suddenly, this all doesn't seem so hard. Trust me.
If you would have told me one year ago that I would be sitting pretty on a $1,000 emergency fund AND paying off debts on an average of one every 3 months AND still able to pay rent AND eat more than just ramen noodles I would have giggled at you because that's what I do when I'm uncomfortable.
I paid off my second debt (out of 6) last week and the feeling that comes along with that is euphoric (SEE YA ANN TAYLOR LOFT CREDIT CARD, HATE YOU LOVE YOU BYE). No matter how mundane this process gets, or even how lonely it can sometimes be, nothing trumps the feeling of knowing I'm one step closer to financial freedom.
I'll say this again as I've said a ba-freaking-jillion times before: this experience has changed my life and I'll never look back. And it can change yours, too. But you have to want it. It's not all rainbows and butterflies and debt Zumba dances all of the time, but it is worth the fight. In fact next I'll get really honest with you and tell you about my most recent spending habits and how my cash envelopes now have sub-envelopes and how life felt a little out of control for a hot minute. If you have questions, reach out and I'll be happy to talk with you. Some of you have already and it makes my little heart a happy place.
Listen. You CAN do this. But only if you want to.