Tag Archives: budgeting

The Snowball Effect

                                                                Photo: Yay Images

When I moved back to the US in 2016, I had to work really hard to rebuild my credit. Shortly before I left in 2010, I was a victim of identity theft. It’s practically impossible, trying to get the IRS to respond to requests when you live abroad. A good credit profile includes a combination of different types of credit (installment, revolving, etc). It’s so damn easy to get into debt. Getting out is another matter. I used the snowball effect to pay off high balances, which meant I had a better-looking credit profile.

If you have not heard of the snowball method, this blog post is an excellent summary. Debt can pile up quickly, becoming overwhelming before you know what to do with it. Fortunately, there are strategies you can employ to pay down your debts, without going broke or insane in the process.

The snowball effect is an easy and convenient method of paying down debts, regardless of how much debt you have. Can you imagine what it would be like to live without debt? Your money would be yours, to do with as you please, instead of feeding the wallets of the rich. You’ll look forward to enjoying guilt-free vacations – paid for with cash – and buying your next car with cash, instead of credit. Picture the life you deserve in your mind and feel the feelings of relief. Next, make a plan to move toward this life, and put your plan into action.

Follow these tips to use the snowball effect for paying off your debts:

  1. Pay off your smallest debts first. When you pay the smallest debt off first, you start a small amount of momentum that’ll build quickly. Write down all of your debts from smallest to largest, and then create a plan to pay off the smallest one first.
  2. Small wins add up. Your personal finance strategy will be more successful if you feel motivated, which is why small wins are so important in the beginning. When you start paying off your smaller debts, you’ll find yourself feeling motivated to maintain your debt-reducing strategy.
  3. Pay off the next smallest debt. Once the smallest debt in your list is completely paid, add whatever you were paying on that debt to the payment for the next debt in the list, essentially doubling your monthly payment on that debt. Once you tackle this debt, you have another win under your belt.
  4. Eliminate all debt. Use the debt snowball to eliminate the rest of your debts from smallest to largest. As each debt is paid, add those payments to the next debt. Don’t worry about term lengths or rates unless two different debts have similar payoff amounts, at which point you should pay off the higher interest rate debt first.
  5. Keep building momentum. Let the momentum continue, repeating the debt repayment process for each debt as you work your way closer and closer to financial freedom. Every payment moves you closer to your goal of being financially free.
    • As you’re attacking the smaller debts first, maintain the minimum monthly payments for everything else. Do whatever is necessary to focus your attention on maintaining your plan and keeping this momentum going.
    • Keep stepping up from bill to bill, paying off the next smallest, then the next smallest, and so on. After your credit card debt is taken care of, you can focus on other debts as well – to where even your mortgage is paid off.

The snowball effect is an effective debt repayment strategy. Utilizing this method of debt repayment will help you keep the momentum as you repay your debts so that you can get the job done and enjoy a life free from the constraints of debt.

Until the next post,



Avoid Common Budget Busters And Increase Your Savings

If the balance in your savings account isn’t growing fast enough, a common budget buster might be to blame. Sadly, you’re not alone in missing your financial goals. According to a June 2014 survey conducted by Bankrate.com, 75% of Americans have no savings and live paycheck to paycheck! Are you one of these?

Thankfully, there are steps that you can take to get your finances back on track. Use these strategies to stick to your budget and achieve your financial goals:

  1. Avoid impulse shopping. If impulse shopping is your weakness, resist the temptation. If you go shopping for a needed item, take a responsible friend with you to help strengthen your resolve. Make a list before you shop and then buy only the items on your list. Leave your debit and credit cards at home and only bring enough cash to pay for the needed items.
  2. Seek to understand what triggers your overspending behavior. For example, if you find that you are more tempted to abandon your budget when you’ve had a difficult day, only go shopping when you’re well-rested and under less stress.
  3. Get organized. Adopt a new method of organizing your important papers and receipts. Do “forgotten bills” seem to constantly surface and derail your spending goals? If you forget to pay a bill, you may have to pay a late fee and interest. Those extra charges can add up quickly! Set reminders to cancel memberships and other subscriptions before they auto-renew to avoid paying for services you no longer use.
  4. Shop for better rates. Just because you’re satisfied with your current service provider doesn’t mean that you shouldn’t periodically shop for a better rate. Every few months, review your expenses and seek ways to reduce the amount that you pay for many common services, such as your telephone bill and car insurance. When you contact your provider, ask if you’ll save money by bundling services, or cut back on features that you seldom use. While your provider may not reduce your bill, it doesn’t hurt to ask.
  5. Watch for unusual spending. Periodically review your expenses and see if you can identify an area where you frequently overspend. Most of us typically overspend in a specific category. Challenging categories for most folks include clothing, entertainment, transportation, travel, food, and housing. Once you’ve identified a category of expenses that seem to break your budget, seek ways to make smarter, less expensive choices when you buy things in this category. Reducing your spending in a specific category can be very challenging. 
    For example, if your housing costs are eating up too much of your budget, your only solution may be to move to a smaller or less expensive location. 
  6. Identify specific items that are hard for you to resist and do all you can to avoid them. If there is a certain store or website where you consistently seem to go over your planned spending, find new, less tempting locations to shop.
  7. Get outside advice. If you find that you’re frequently over budget or have difficulty meeting your financial goals seek professional help. Most accountants and financial planners can offer sound advice to help you learn how to plug the holes in your budget and gain control of your finances. You can find lots of free and low-cost advice on budgeting and financial planning online. Many organizations, such as churches and local chambers of commerce, offer free or low-cost credit counseling and financial planning courses to members.

Becoming aware of common budget busters, and selecting a strategy to deal with them, can help you to stick to your budget and increase your savings.

Until the next post,