November 24, 2008

Early Retirement | Debt Snowball Update

Right now early retirement is probably the last thing on anyone's mind. With the economy in the tank, automakers on the verge of bankruptcy, and winter nipping at our noses (I hate cold weather so I thought I'd drop that in!) there is no room to talk about early retirement right? Although it may appear as though the primary question of the day may be how to get out of debt, now is actually the perfect time, because there is never going to be an exactly right time to get your financial house in order.

Because of the state of the economy, however, you may need to turn your sites away from investing and creating passive income and focus on the things that are slightly less risky. And there is no better time than the present to start another debt snowball to help you on your way. If you remember, I discussed exactly what a debt snowball was in an earlier post (and my friend over at the daily dosh has done exactly the same thing).

If you are anything like me, you have probably strayed from your debt snowball for whatever reason (for me it was moving to a new city and starting my own business from scratch). Well, now is the perfect time to get back on that horse. It is really hard to retire early if you have a mountain of debt to pay down.

To started paying down your credit card debt, first find out the exact balance and interest rate you are paying on each card, find out the minimum payments on each, and find out what you can put toward credit card debt generally per month. After that you pay the minimums on every card you have but one, with the one you choose determined depending on your psyche. One way to pay down the debt is to put all the extra money toward the lowest balance and moving upward. This is nice because it allows you to actually see progress very quickly. The other method is to pay off the debt with the highest interest rate first. This actually save you more money in the long run (and is the best choice if you are strong willed).

As you pay off each credit card balance, you apply all of that payment (the excess plus the minimum you were paying) toward the next card in line. In no time you have eliminated credit card debt!

As for the update on me, I don't have much progress to report, sadly. I think I may have to make that a New Years Resolution. Starting a business is tough on the debt, though. But if you want to retire early sometimes you've got to go out and get that money on your own, you know.

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