Category — MyTMMO

Sometimes, I tend to forget that my choice of words have the potential to confuse some readers. For instance, if you’ve never heard of Dave Ramsey, the term “debt snowball” may have no meaning to you whatsoever. So for those of you who aren’t familiar with the term, let’s break it down!

The term is basically an analogy of the way a snowball rolls down a hill, and as it rolls, more snow sticks and it continues to grow larger and larger. That’s how this method of paying off debt works. You start slow. You list debts from smallest to largest. This should probably include any one you owe money to, except for maybe your mortgage. You’ll pay the regular minimum payments on every bill, with the exception of the one you owe the least amount to. For that particular bill, you will scrape together every penny you can find that isn’t promised somewhere else, and pay that toward this smallest debt. Once the smallest debt is paid off, you move to the next smallest debt and apply what you were paying on the first to this one, making this payment even fatter. Do you get the basic idea? As you pay off each debt, it will make your payment on the next one bigger and bigger, making your payment grow like a snowball. Pretty neat, huh? I sure think so. And the best part is that it works!

Here are the basics of the plan, in order:

1. $1,000 to start an Emergency Fund
2. Pay off all debt using the Debt Snowball
3. Three to six months of expenses in savings
4. Invest 15 percent of household income into Roth IRAs and pre-tax retirement
5. College funding for children
6. Pay off home early
7. Build wealth and give!

There you have it.