My system has a name …

daveramsey.jpg

So I’ve been reading a lot about Dave Ramsey and the debt snowball technique in people’s blogs and though we get Suze Orman once a week on our CNBC pay TV channel here in Australia, I’ve never seen him on any of the US shows. I think he’s in radio though, isn’t he?

Anyway, I have to say that after going to his website, I’m a fan. I’ve employed a debt snowball technique in the past, when I paid off a previous car loan. (Don’t ask why my hubby and I wrecked that then by buying an expensive second-hand car just months later!). But I found this snowball technique works much better for me on the psychology of debt: you really feel you are getting somewhere and can see at least once balance coming down fast.  I’ve never been one to pay minimum payments, so that wasn’t an issue to change, but I found each week I could track my progress and find myself that bit closer to having one less debt. I understand those who are more matter of fact about money and feel it doesn’t make sense – from a financial point of view – not to pay off the debt with the lowest interest first. But I guess many of us who are focused on debt reduction take a different tack: we know we’ve been irresponsible in the past and we have to change our habits, but we are used to acquiring things and just charging anything we need. So it can be helpful to see some radical changes in your debt all the time (I’m looking forward to having a $0 owed in one of these columns on the right!). There’s nothing like getting rid of another creditor to spur you on and make you feel like you’re a success. I’m afraid my mind is very scatty and I can quite easily switch focus from debt reduction to clothing acquisition in a single afternoon! When I get that urge, I track my progress on my spreadsheet and focus on what we’ve achieved in a short time.

Very soon I’m expecting some payments that might actually wipe our credit card debt of $5170 almost entirely! We are owed some government support payments and we recently found out we were massively underpaid for the last financial year (no wonder we were struggling!). We are also due to receive 2 tax returns. Losing one of our debts will feel awesome, but needless to say it’s good luck that is putting us in that position again, not our own sound financial planning. Our challenge will be to avoid using our credit card again as we aim for home ownership. I’ve paid off our credit card once before, but almost immediately we found a way to jack its balance back up again (kind of like that car loan I was talking about)!

I’m aiming for an emergency fund of $1000 until we get our home loan. Does anyone want to share their opinion on how much people really need in an emergency fund? I’m aware there a few schools of thought. I am torn though and wouldn’t mind hearing what others have to say on the topic.

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1 Comment »

  1. Lynnae said

    I love Dave Ramsey! His radio show isn’t on in our area, so I download his podcast and listen to him on my mp3 player. The link is on his site somewhere (I don’t know how to put a link in blog comments). If you don’t have an iPod or MP3 player, you can just listen on your computer.

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