This experiment began several years ago when I received a brochure in the mail advertising silver bullion coins as an investment vehicle. The “hook” was, “We will sell you two silver eagles for the price of one, if you agree to read our special report on silver.” When I saw this, I thought, “I could give one of these coins to a friend who was having money problems as a touch point for her prayers.” I sent her a coin and a notebook with instructions. Every day we prayed that the Lord would grant her wisdom in the area of finance. Every day she made an entry in her notebook.
The initial experiment was extremely successful. At the end of six months, her attitude towards money was radically different. She began to systematically eliminate her consumer debt. She changed some behaviors that were sabotaging her financial situation. Then towards the end of the six month experiment, she was able to move into her own home for the first time in her life.
Finally, when the participants are ready, they will give their coin with a blank notebook to a friend or a family member who is ready to change their relationship with money. In this way, friendship and blessings will keep flowing forward forever, even into eternity.
There are basically two methods to systematically reduce your debt. One is called the Debt Snowball. The other is called the Debt Avalanche. There is a third method that can be used by itself or to supercharge either the snowball or the avalanche. It is called the Debt Snowflake. Either the Snowball or the Avalanche will work when combined with unrelenting effort and patience. Neither of them will work unless you get your emotions involved. When you are sick and tired of being a debt slave, so sick and tired you just can’t stand it anymore, it is more likely that you will persist when the going gets tough.
First let’s quickly review the basic methods of debt reduction. More detailed descriptions of these methods can be found in this blog or other web sites. Then let’s talk about getting angry.
Dave Ramsey promotes a method of debt reduction called the Debt Snowball. It is not the most financial efficient method available but Ramsey contends that for sound psychological reasons it is the method most likely to succeed.
The method works as follows. First rack and stack your debts starting with the smallest and ending with the largest. Do not consider the interest rate.
Make the minimum payments on all your debts. Then take all the extra money you can afford on a monthly basis and go after the smallest loan first. Once the smallest debt has been repaid take all the money you were paying on that debt plus the minimum payment on the next largest debt until debt number two is paid off. Repeat this process until all your debts are repaid.
It is called snowballing because as you pay off each debt you have more money available to pay off the next debt, like a snowball rolling down a hill. Ramsey believes that extricating oneself from debt is 80% an emotional problem and 20% a matter of knowledge. He believes it is better to go after quick attainable goals to build a psychology of success.
The debt avalanche is the more traditional and mathematically correct method of debt reduction. It is called an avalanche because it starts small but becomes very large and powerful as time progresses. In this method the interest rate is everything.
First ask your credit card providers to lower their rate. Obviously this works for the debt snowball as well.
Rack ‘em and stack ‘em according to interest rates. This time differentiate between good debt and bad debt. Typically “bad debt” would include credit card debt, Home Equity Line of Credit (HELOC) loans, and store loans (furniture and appliances). These loans would typically have higher interest rates. “Good debt” would be limited to car loans and your first mortgage. Personally, I don’t differentiate between good debt and bad debt.
Continue to pay the minimum on all your debts and use any extra money you have to go after the credit card with the highest interest rate, then progress to the next item on the list adding the money freed by paying off the previous item until all debts are paid in full.
The Debt Snowflake could be used by itself or with either of the other methods. It is a pretty simple idea. One snowflake falling on the ground is no big deal, but thousands of snowflakes over a very long time results in large accumulations even in a desert, like Antarctica, where the measured rainfall (snowfall?) is less than ten inches a year.
Decide not to put that $3.50 latte on your credit card? Good for you but don’t stop now. Put the expense you didn’t make in a note book or put the cash in a jar. Then at the end of the month or sooner if the amount is large use that money to pay off the credit card. Make it a game.
Anything can be a snowflake, a small debt repaid by a friend or even the difference between a brown bag lunch and the cost of the company cafeteria. Snowflakes can also be proactive, the return on a yard sale or pay from a part time job. Don’t limit yourself to thinking that all snowflakes are small. Some snowflakes, such as tax refunds or inheritances could be quite large.
Now get angry. Dusty Rhodes aka The American Dream was a TV wrestler back in the 1980s. He was not particularly athletic but boy he could act. Before a grudge match against an evil enemy he could deliver a rant that would make a televangelist green with envy. He would recall all the outrages he had suffered at the hands of his opponent and then guarantee a bloody vengeance.
Go ahead and tape copies of those credit card bills to your refrigerator and talk to them.
“Mastercard. You put hard times on the dreams of the American people. You put hard times on my American Dream, but yo’ balance is goin’ down.”
“I’m goin’ show you some hard times. I’m goin’ to take back from you what you value most, my money and my life. My life and my money belong to me.”
“Mastercard. There is two bad people on this planet. One of them is John Wayne. He’s dead and you lookin’ at the other one.”
“Mastercard. I’m comin’ for you!”
When you are about to make an impulse purchase, perhaps a pack of cigarettes at a convenience store, stop for ten seconds, then say to yourself (you don’t want the clerk to trigger the alarm), “Bad habit, you been fuelin’ my debt for 20 years, but today you is goin’ down.” Then threaten your vice with the feared bionic elbow.
Finally the day will come when you put that Mastercard in the dreaded figure four death lock. When you have the bank screaming in pain, take that card and throw it into the shredder.
Go on and have a little fun.
P.S. If you don’t want to release your inner TV wrestler, go ahead and visualize your guardian angel going after your debts or bringing you money from your heavenly bank account. I don’t care how you do it but, get your emotions involved. It is easy to convince your higher brain debt is a bad idea. Now find a way to make it real in your lower brain.