Pay Off Debt – The Hybrid Debt Snowball Fight

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My wife and I are entering week 6 of Dave Ramsey’s 13 week Financial Peace University course.

Though prior to attending FPU classes we had already built up a healthy anger toward our past deficits… joining FPU put us over the edge and helped equip us for the inevitable Debt Snowball Fight we would soon find ourselves smack dab in the middle of!

3 Things We’ve Solidified after 5 weeks of class:

  • We finally nailed down a solid budget – We were operating by a “loose budget” but it was not nearly as sustainable or accurate as what we have now.  For those who have been trying for months to nail down their budget – don’t give up – it took us 10 months, but now we have one and we LOVE it.
  • We implemented the cash envelope system – We are using this in tandem with our Spending Journals and absolutely love it.  I found unabashedly that understanding how well this curbs spending cannot be realized without practicing it first hand.  We still record every purchase but only use our Spending journals to record debit card transactions, while all cash transactions are recorded on the outside of each individual cash envelope category.  I will be writing about this in greater detail soon.
  • We officially started our debt snowballToday’s featured topic. Dave Ramsey (“make personal finance personal”) suggests the “debt snowball” method of debt repayment over the “high interest first” method.  Dave’s general debt repayment rule of thumb is good for people who want a set-it-and-forget-it plan – and for people who thrive on the emotional “big wins.”  Personally, just having the plan in place is the emotional win for me. Don’t get me wrong!  I will leap for joy as each debt is paid off.  But boy do I love it when a financial plan comes together!

Accelerated Debt Repayment – It’s a Fight!

Debt Snowball fights with those you owe can hurt if you don’t carefully plan your strategy.  Using the proper accelerated repayment program will save you thousands and leave your creditors eating snow!

The Debt Snowball, Debt Avalanche, Debt Tsunami, and Debt Snowflake are all good repayment strategies… just make sure you pick the one that fits your situation and run with it!  Debt repayment isn’t a game… it’s an all out war!  Your creditors will bring their A-game to try and keep you in debt until you pass on to go be with the Lord.  What are you gonna do about it?

Here is what works for us…

Our Debt Repayment Strategy

Despite the fact that I am drawn to a strict mathematical solution, it looks like I will end up employing a hybrid debt repayment strategy.  A combination of the high interest strategy, and the amounts owed (debt snowball) strategy.

Of these three plans I choose - The Jabs Hybrid Solution:

The Debt Snowball Solution
The Highest Interst Rate Solution
The Jabs Hybrid Solution
Lending Club Loan – least owed
Lending Club Loan – highest Lending Club Loan
His Student Loan 2nd Mortgage 2nd Mortgage
Her Student Loan
His Student Loan
His Student Loan
2nd Mortgage 1st Mortgage Her Student Loan
1st Mortgage – most owed Her Student Loan – lowest 1st Mortgage

How Much Money and Time I’ll Save

For those of you who do not know, Dave Ramsey – creator of the Financial Peace University course we are currently taking – advises FPU participants to pay off their debt according to The Debt Snowball plan (paying debts in order from smallest to largest.)

I calculated it out last night and found we will save $1,878.31 by paying off our 2nd mortgage before my student loan… even though it carries a larger balance.  Not only will we save nearly $2k, we will also pay off the both loans two months earlier that we would by using The Debt Snowball plan.

Do What Works for You!

To help discover your best repayment plan of attack, use these two calculators:

I didn’t pick my method of accelerated debt repayment because it is the best solution for everyone… I chose it because based on the mathematics, The Jabs Hybrid Solution of debt reduction works best for our situation.  You need to do the same.

Photo courtesy of Princeton University Archives

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