I’m not sure how much you had in your emergency fund, but I’d really caution against everyone just cashing it all in. Yes, it does not make sense to have a massive amount of savings in the bank at 2-3% interest while having credit debt many times that rate. But if you don’t have a financial cushion, you could end up right back in the hole.

We recently had to put about $700 of work into both our cars. If I had not had money in the bank to cover that, almost the whole amount would have gone on the credit card, and my credit reduction would have gone kablooey. I was SO thankful to have that money in place! I even did a Frugal Friday post on it the following Friday.

Moral is, don’t keep tons in savings when you’ve got debt, but do keep some.

And I can’t wait until we have the debt paid down enough to start putting lots in savings – I love having savings!

It looks as if most of what can be said has been said in the previous posts. . .I know I’m preaching to the choir here, but one thing I did want to mention is that paying off the smallest debt first doesn’t “eliminate” a payment from your monthly budget, but you keep paying that same amount onto the next highest debt. (Now, I know most everyone understands this, but I just didn’t read about it in the posts). So you don’t “free up” cash each month by paying that debt off because you just keep paying that payment onto the next highest debt, and so on, and so on, until you knock out all your debts. I think, in that way, you aren’t wasting too much money buy doing the snowball because you are able to put the big “snowball-ed” amount onto that high interest debt (depending on what order it comes in)which will pay it off quicker. Also, according to the “gazelle intense” approach, you throw anything and everything extra you can at that debt. That alone could hasten your debt reduction dramatically. I know a couple who only could pay $.92 extra onto a debt one month, but by golly (yes, I just said by golly), that’s what they did with that $.92!!! THAT is being motivated and gazelle intense!!

Anyway, I really appreciate this site and love the daily motivation it gives me to stay on my written budget. We are a family of 6 and have just under $12,000 to pay off(not including the mortgage). Seems like a drop in the bucket compared to some others’ debt, but with a family of 6 living on 55,000 a year, it sure is slow-going. Thanks for the motivation!!!!

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Money Saving Mom here: So, to reverse that, you’d borrow on your house to invest money in the stock market or mutual funds? Because basically that’s what you’re doing when you keep the debt bondage on your home in order to invest money.

But if the financial experts are recommending this, that would explain why most people nowadays are struggling so much financially.

By the way, I just have to say it: you really need to read what Dave Ramsey has to say on this.

I don’t know about you, but I personally like the benefits of owing no man anything. It sure is F-R-E-E-D-O-M!!

I highly recommend using that debt calculator, it’s very simple to use and easy to understand. And if your debts don’t have widely varying rates, the differences in the two methods are probably not as big as you might think they are.

Then we went to a Crown Ministries seminar where they mentioned two things; It does not make sense to have money in savings and credit card debt. And the snowball method.

I cashed in my “Emergency fund” stock and used the money to pay off my car. Then took the $300 a month I’d been paying on car loan and started throwing it at the lowest balance of credit card. Pretty soon (about a year) they were ALL gone. Then the $300 a month went into savings.

Fast forward three years. My husband quits his job to go back to school. I get pregnant and we have a baby. We are moving back to Texas to be closer to family. We have $40K+ in savings sitting there to help pay for schooling, pay for move, and enable us to make this decision without having to find a job down there first. We can get God’s prompting to move, and Just Go.

It makes me sick to think how much money I wasted before I got serious about paying off debt.

However there is another reason I like the Debt snowball more. Let’s say your highest interest debt is $1000, while your lowest one is $500. Say the minimum payment on both is $50 (not realistic I know but stay with me). Starting with the lowest balance first you will free up that monthly payment sooner. That way if something “comes up” it may be possible to use that money instead of dipping into your e-fund if it is something small. Plus, if you do have to dip into your e-fund you have some money freed up already to pay back into it. If you are not at a point of snowballing yet and you start with high interest first, it is going to be a lot longer before you have any extra money freed up.

If you want to join my snowflake challenge this week click on my name. You can win a free book from David Bach!!

I won’t go into the pro and con or reasoning behind each method; those have been covered well so far. But I will share what we did. I learned of Dave Ramsey while we were working off paying our student and car debts. This was immediately after we graduated. I had never heard of the “avalanche” method till now, though that is what we used. Being math people, we both knew that paying off highest interest first would get us there while paying less money. We didn’t need the quick returns that the Snowball method relys on because we didn’t have a problem with spending and not saving, per say. Instead, we created a graph of the anticipated “Pay Off” date of all of our combined debts. Each time we paid off another debt, we would recalculate the “Pay Off” date. It was so encouraging to see that date move closer and closer. As we paid off some of the larger ones, we would celebrate. I had origionally determined to pay off my debts within 5 years of graduating. Then I got married, and we combined our debts. Together (with almost exact amounts of debt) we paid off our debts in 2.5 years! Yeah, we didn’t travel to see family and friends like we would have wanted, we didn’t eat out a whole lot, our house was pretty bare, and our “vacations” were visiting with family or a weekend camping trip. But it got done.

I don’t think it matters so much which one you use, just that you GET IT DONE. =) We did this same aggressive paying on our last house and had it almost paid off in 2 years. Having no other debts frees you to do stuff like that. I keep thinking of how much money we will be putting into our savings when our current mortgage gets paid off (I’m hoping in another 2 years). What freedom that will be. After that I don’t want another debt; not even another mortgage.

It can be done. So for those of you on this road, keep going. The end is GREAT!

Dave explains in later chapters that the Debt Snowball is for consumer debt. Paying off your home is comes after consumer debt, emergency fund, maxing retirement savings, education savings, etc. Hope that helps!

Pay off the credit cards before your mortgage. Should something happen, you could probably sell your house and pay off what you owe on the mortgage. I bet that is not the case with your credit cards. Credit cards also have other fees associated and as you’ve seen, the rates change and you’ve already been moving that money around for 6 years. Focus on paying it off, and then you can stop the interest rate dance.

As for the general topic at hand, I prefer paying off any dramatically smaller debts first to get some momentum and motivation and then paying larger debts off by the highest interest rates. I’m a math person, so the avalanche appeals more to me. My husband is an impulsive person, so the quicker motivation of the snowball method is better for him. We tried to compromise and find a good balance between the two. Regardless, if you stick with either program, you’ll pay off debt, which is the important thing.

Anyway, the debt avalanche definitely makes the most sense to me. I never liked the Dave Ramsey approach because it doesn’t make sense to me to pay more interest to get a slight psychological boost.

I get my boost from calculating how many fewer months I will be sending checks to Sallie Mae, if I just send a little more each month. Just yesterday I increased my minimum due by $90 a month and cut 28 months off my payment time!! That is boost enough for me!

The problem I’m having lately though is my interest rates keep changing on my student loans, because of all the current economic turmoil. So I’m constantly having to reconfigure what I’m paying to who This complicated monthly bill paying process is one of the reasons I really want to have no debt and I admire your ability to do so.