If "Debt Snowball" is a term you are unfamiliar with, it works like this:
- Write down each and every debt you owe, outside of home expenses and utilities. Mine include 2 credit cards, a time-share and my car.
- Break down highest to lowest balance, interest rates, monthly payments.
- For me, my highest interest rate was also my lowest balance so I chose to pay that off first (we'll call it Debt 1).
- I pay the minimum payment on my remaining three debts and all discretionary cash on Debt 1 (this is over and above the minimum payment).
- Once Debt 1 is paid off, I roll my entire Debt 1 payment plus the minimum payment for Debt 2 to pay off Debt 2. And so on and so on until all debts are paid off.
- Once I am debt free, I will begin building my emergency fund. 3-6 months of expenses. Without my debt payments, my monthly expenses are pretty low.
- I will also max out my 401K and fully fund my Roth IRA.
My goal for 2010 is to pay off my two credit cards, time-share and most of my car. The car won't be fully paid off until halfway thru 2011, but I'll be in a much better financial situation before then.
So don't ask me out to lunch. I'm paying off my credit cards.