Managing Money God’s Way

In Baby Step 1 we talked about saving up an emergency fund of $1000.  The most important reason you are saving up that money is so you do not go further into the debt hole by using your credit cards while you are paying down your debt.  As a review, here are the steps we have covered thus far:

Step 1 – Emergency Fund of $1000.

Baby Step 2:  Pay Off All Debt Using The Debt Snowball Method

This step more than likely will be one of the longest in the 7 step process.  If your dealing with alot of debt from student loans, credit cards, auto loans and other things, you might be at step2 for a couple of years or more.  Remember, the key here is to pay off your debts.  Bankruptcy should not be an option.

So how does the debt snowball work?

• Put all your debts in order from the smallest balance to the largest.
• After all your necessities (food, gas, utilities, etc.) are paid, make minimum payments on all your debts.
• Put any extra money towards paying off the debt with the smallest balance.
• Once you have paid off the smallest balance, you roll (snowball) all that money towards paying off the next smallest balance.
• Repeat until all your debts are paid off.

This may not be the quickest way to pay down your debt, but I know this works because I am using it with great success.  Using this method also gives you a great psychological boost from the quick “win” you achieve by paying off the smallest debt.

Do Not Go Into New Debt

The key to making the debt snowball method work, is to make sure you don’t go into new debt, while you are paying down the old.  Here are a few tips:

1. Quit borrowing more money.
2. Take your credit cards and put them in a plastic cup with water and freeze them at the back of your freezer.  This makes them very difficult to get to.  While they are thawing out you can really think hard if you need to use them.
3. Have a yard sale.  If your like me, you have a garage and house full of stuff you don’t even look at anymore.

Get serious about paying off your debts, and in no time you will be debt free!

Next Up:  Baby Step 3:  3-6 Months of Living Expenses in Savings