March 13, 2008

Personal Finance | Eliminating Credit Card Debt | Debt Snowball

Building Wealth - Personal Finance - The Debt Snowball

In my last post, I talked about debt snowballs and eliminating credit card debt. In this post, I want to outline my own personal debt snowball to provide not only an example of how to do it, but to provide you some motivation to do it yourself. It really doesn't take that long to put together, and once it's up and running, it's very easy to maintain. This post is all about building wealth and personal finance. Furthermore, if you are wondering how to be frugal, this is a great start.

Debt Snowball Spreadsheet

To keep yourself on task (and motivated to continue the project) the first thing I would do (after compiling all of your credit card debts) is put together a spreadsheet. I use google docs spreadsheet. It's free, it's easy to use, and you can access it from any computer.

Step 1 - Dates

In my spreadsheet, I have DATE up in the top left hand corner. Down the first column, in the next space I have "beginning balance", followed by a blank cell, followed by the rest of the months in the year. After that is a blank cell, followed by "current balance," followed by another blank cell, then "original owed," and finally "current owed."

Step 2 - Labels

Going across the top row I have each of the names of the credit cards/debts I have (6 total). Before getting to this step, though, first you need to list your debts in order, from smallest balance to biggest balance, from left to right. This is how you would enter the names of the debts into the spreadsheet in the first row (rows go across, columns go up and down). If you pay interest on your debts, leave two columns in between each of the debt descriptions.

In the next row, enter the current balance of each of your cards (it should correspond with the "beginning balance you entered earlier"). In the row right next to the balance, put the minimum payment, or just over the minimum payment, except in the first column. In that column, I want you to write in whatever it is you have determined you can pay, which hopefully is at least 3 times your minimum payment (for me, my minimum payment is $50 and I'm paying $650 - put in the most you can comfortably put toward it).

After the balance row, under the row you actually entered your current balance enter "payment." In the row right next to that put "interest." It is in these columns that you'll document your monthly payment as well as the interest that has accrued on your debt. This should keep your credit balance up to date.

Step 3 - Formulas for Calculating Progress

Next, go down to the current balance row and in the payment column enter the formula so your monthly payments will be subtracted from your balance but your interest will be added in. In Google docs it looks something like this: B2-SUM(B4:B14)+SUM(C4:C14). The letters and numbers refer to the cells you want to add up.

Almost done. The next step is to define your original balance. Do that in the cell right next to the one labled "original owed." That formula looks like this: SUM(B2+E2+H2+K2+N2+Q2). This will add up all the original balances.

Finally, determine what your current total balance is (you don't have to do these two steps, but I think it really helps to see that balance shrinking so rapidly). That formula looks like this: SUM(B16+E16+H16+K16+N16+Q16). Once this is complete, all you have to do is fill in the corresponding cells every month and the math will be done for you.

Remember though, that when the first debt is paid off, you roll all that money over into paying off your next debt. By the end you should be making a huge monthly payment toward that big balance (mine will be over $1000 in the end).

My personal debt snowball

Finally, to give you an idea of where I currently stand, and to make updates worthwhile, I'm going to give you my current debt standing. As I said before I have 6 outstanding balances originally totalling $30,693.11. The current balance is $28,667.96. My original balances are as follows: $3,197.41; $4,516.20; $5,819.77; $7,110.55; $8,564.00; and $1,485.18 (interest free). On those balances I pay $650; $100; $100; $120; $80; $135.93. If you add all that up, I should be completely debt free in 2 1/2 years. At that time all this money can be put someplace much more valuable!

Hope everyone learned a little from this. I plan on updating it from time to time to let you know my progress.

Personal Finance Debt Snowball Credit Card Debt

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