Debt Snowball Into Savings Or Pay Off Debt?

Snowball by redjar on Flickr!The idea of debt snowballing is a popular one: it pushes you to get rid of your debts and get on a financially stable playing field, plus it encourages you to behave in a frugal fashion because you’re setting aside such a large, steady block of money each month to eliminate those debts.

What’s a debt snowball? From an earlier post:

A debt snowball (or similar arrangement) is simply a debt repayment plan that specifies the order in which you should pay off your debts. Typically, there is some logic in the order – in Dave Ramsey’s original debt snowball, the debts were ordered from smallest to largest, for example. You then add up the minimum payments for this snowball, add an additional amount to that total, and then treat that dollar amount as your “debt bill” for the month.

From this “debt bill,” you make the minimum payments on all of your debts, then use the remainder to make extra payment on whichever debt is on top of the list. When that one is paid off, you don’t reduce the total of your “debt bill” – instead, you just have a larger remainder to tackle whatever debt is now on top of the list. Eventually, you’ll be using the whole “debt bill” amount to tackle that final debt – and it will melt away quite quickly.

The concept of the “debt snowball” was first popularized by the radio host Dave Ramsey, and his plan is probably best described in his excellent book The Total Money Makeover.

But, as I mentioned before, there’s a big problem with the whole debt snowballing idea and that’s security.

Debt snowballing requires you to roll a large amount of your income each month into debt repayment, and if you get through the entire plan without any problems, it works like a charm. But life rarely works that way. People lose their jobs. People switch careers. People have children unexpectedly. People fall in love and get married. People get hit by trucks. Things happen, in other words, and if you’ve tied up all of your money in getting out of debt and left almost nothing liquid for yourself, those things can really derail your dreams.

So here’s my alternate plan, one I’ve been using for the last two years to handle larger debts. Instead of paying extra debt payments each month, I instead roll a certain amount each month into my emergency fund savings account. When I have enough in that emergency fund account to pay off my next debt and leave enough in the emergency fund so that I’m comfortable (six months’ worth of living expenses), I pull that cash out and pay off the debt. I’m actually pretty close to doing this right now to pay off one of our outstanding debts.

I tried other plans for a while because this plan does have flaws, but the benefits of doing it this way kept bringing me back. Here’s how both sides of the coin look.

A debt snowball savings account offers more security Instead of having your cash wrapped up in extra debt payments, it’s easily available in cash form from your savings account if you need it for an emergency. Lose your job? It’ll be much easier to survive with cash in the account than with lower debts. The same goes for almost every kind of emergency you can think of – having the cash is much better than having lower debt.

A debt snowball savings account offers more life possibilities Similarly, with the money available to you, you have much more freedom when it comes to making choices about your life. Want to switch careers or have a child? You’re not lashed to the debt snowball routine, giving you room to make these choices without sweating it.

A debt snowball savings account slows your net worth improvement Financially, this method isn’t nearly as effective as actually paying down the debts. The 3% you might earn in a savings account is far lower than the 7% or more you’d get from eliminating debts. That difference adds up to a lot of money over time.

A debt snowball savings account makes it easier to spend If you have a big wad of cash just sitting there, it’s easier to talk yourself into spending a little bit more. The debt snowball savings account requires you to have plenty of diligence and discipline; if you don’t, it won’t be very effective.

For me, the net balance is a positive for the savings account. It enabled me to switch careers and have a second child without sweating every dime. Since I have some degree of discipline (I’m far from perfect, but we are spending far less than we earn), I’m not tempted to tap into the money. The only part that itches at me is the loss in net worth growth, but I view it as almost being a form of insurance, and that slower growth is the fee I’m paying for this insurance against whatever may come.

The balance on the whole may be different for you. Give it some thought and come to your own conclusions based on your own situation. For example, if you’re single and are more concerned about financial independence than anything else, a normal debt snowball may be the highly preferred choice.

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  1. Xerloq says:

    Interesting idea, but I disagree. I don’t totally agree with Mr. Ramsey either. For argument’s sake, Mr. Ramsey advocates having an emergency fund (albeit a small one) before starting the “snowball.”

    A very simple argument is that with the debt, there is no security, regardless of how much one has saved. Should debt result in bankruptcy, the savings are a moot point.

    Another argument against the snowball to savings is compound interest. What good does it do me to pay minimums on my 5% debt and pack savings into a 3% MMA or a 4% CD? Any other higher interest investment vehicle wouldn’t be liquid enough to be useful in a safety situation.

    The point of the snowball (or accelerated debt reduction as coined years before Ramsey) is speed. The earlier you’re out of debt, the faster you can save, as an integral part of the snowball is to roll it into saving after the debts are paid, resulting in a much larger contribution to savings.

    I’m sticking with my debt reduction plan.

  2. Benjmain says:

    Regarding Dave Ramsey’s methods, what some people have done is actually switch the baby steps around by aquiring their larger emergency fund first and then continuing on with the debt snowball.

    My wife and I did this when we paid off our debt. This allowed up to “comfort” of having additional savings should an emergency happen, and then allowed up to resume our snowball payments aimed directly at our debt.

    On debt at a higher interest rate (say an 18% credit card) I would rather have the outstanding balance reduced each month by my “snowball” payment than have the interest keep “compounding” until I had saved enough to pay it off!

  3. Matt says:

    I like the idea very much – although you’re right it isn’t the ideal solution it gives you a lot of room for dealing with the emergencies that life throws your way. Not to mention you can also use the savings snowball sooner and pay down chunks of debt say for example an extra $1000 to paying off your mortgage when you have the money available.

  4. I’ve had the exact same thoughts, and I’ve kind of done something similar a few months back-although now I am back to the “pay off debt” mode. The security or “insurance” of having that cash just in case makes saving it first attractive.

  5. Courtney says:

    I had thought that in Dave Ramsey’s money makeover he recommends going for a $1000 emergency savings account BEFORE you even start the debt snowball.

    How is this different from that approach?

  6. Moneymonk says:

    Im a security person as well.

    I know DR recommend a $1,000 in the bank and the future earning directly to debt. I at least have to bump it up to $3K

    I also don’t agree with another theory he has- not investing in your retirement until you get rid of all your debt. I may lower it, but not omit it all together

  7. I’ve been working the debt snowball with the $1,000 in an emergency fund. Life happens. Car repairs, a tree fell in our yard that needed attention, massive dental bills (uninsured). We slowed the snowball and took care of the things that needed immediate attention (cash) and then resumed the snowball.

    If we had not been paying off the debt, these others things would have happened anyway and we would have a depleted “debt savings account” and larger unpaid debt due to the lack of snowballing.

    The real deal, IMHO, about the debt snowball is that it does, in fact, instill some discipline where there wasn’t any before. If there was I wouldn’t have accumulated all this debt in the first place!

    The big thing with the snowball is that you see progress. The thing with a “debt savings account” is that you see very little, if any, progress but you do see a lump of money getting bigger and bigger calling out, “Spend me. Spend me.”

  8. Kacie says:

    We’re going to complete our six-month emergency fund before we start paying off our last debt–our car loan.

    Since we have a baby on the way, I think the smartest thing for us to do is to put extra payments into an ING Direct subaccount and pay it off when we’re a little more comfortable doing so.

  9. Sarah F. says:

    I agree with Ken M. It helps me more psychologically to keep the debt snowball going, and to see those debts disappear, than to have a debt savings account.

  10. Marie says:

    We’re doing a 50/50 split right now. We want to ditch PMI but our car will need to be replaced soon. We want to avoid more debt so we are saving for the car at the same time. Hopefully we’ll be able to get a cheaper car and ditch PMI sooner.

  11. JT says:

    Umm, I would hope people are rational/intelligent enough to use this “method” of paying off debts without having to read about it.

    It can be rephrased as “pay off as much of your high interest debt as possible each month”. Good thing I read that, or I would have paid off my smaller, low-interest debts first.

  12. Lurker Carl says:

    You can pay down the debts while adding to savings or retirement accounts. It doesn’t have to be an all or nothing situation, divide up the money among bills and savings. But it seems this is six of one, half dozen of the other kind of thing – more savings equals more debt versus less savings equals less debt. What’s the difference in the end?

  13. Brett McKay says:

    Right now, I just have student loan debt. A lot of it. I’ve been trying to think of a way to start paying more down on it. As a student living on my spouses meager income, it’s difficult to increase our monthly payments because we’re living pretty much pay check to paycheck. I think this plan might be the answer I’ve been looking for on how to pay down more of my student loans.

    We already save a bit each month for an emergency fund. Whenever, I have a couple hundreds dollars more in the account, I’ll just make a payment on our student loans.

  14. Troy says:

    Most people need the guard rails of a disciplined debt snowball vs the freedom of a debt savings account because the factors that got them into debt are the same ones that tempt them to spend the savings.

    It does make it harder to deal with life when you have applied most of your efforts to eliminating the debt through the snowball. That is the entire point. It is called behavior modification, and it is most effective when you have no other choice but to follow it.

  15. KC says:

    Ramsey allways espouses having $1000 in the emergency fund before debt snowballing. I think his point is that many of these people can’t control spending. So if they have an adequate emergency fund of say $8000 – they would be tempted to blow it.

    What Ramsey is saying is that $1000 is enough to cover most anything life can reasonably throw at you. Sure there are more expensive things, but most likely $1000 will get you covered. Then once you start paying off those debts you’ll get such a high or sense of peace (and it really does happen) that you won’t be tempted to touch your emergency fund whether its a mere $1000 or a more reason able $8000. But you have to sense that good feeling of paying off debt before you can be trusted with a large sum in the bank. Otherwise you’ll be very easily tempted to return to your old ways while trying to snowball money into a savings account before paying off that debt.

  16. Chris says:

    I did this way back when I bought my car. I would save up all my extra money, hopefully as clsoe to half my paycheck as i could. Once I hit 10k in savings I made a 5k lump payment to my car. I kept doing this till my savings were exactly what i owed on the car.

    this way if I lost my job I’d have an emergency fund to make car payments until I found a new job.

    Of course I had no conception of an emergency fund at the time, I just thought this made the most sense.

  17. Bethh says:

    I think this is how I’m going to handle my final debt, which is about 12k in student loans at a very low rate (2.99%). I want to save for a house down payment, and save for travel, but I also want to get rid of that last chunk of debt!

    On the one hand, the rate is so low it seems silly to pay it off when I have other goals to save for. Yet on the other hand, it’s debt. So I think I’m going to go the middle road of saving a few thousand dollars, and then lopping some off the top to apply to the debt payment, then saving more, applying more, etc.

    I’ve been struggling with this for a while, so we’ll see.

  18. Trent, I think that there are many ways that you can go about this. I’m personally like you, I like having some cash around. My readers on the other hand believe that having too much cash on hand is sitting there being wasted. The return is much greater if you put the money towards debt.

    In case of emergency, a personal line of credit can be used, because it’s just that, an emergency which most likely won’t happen. In addition, interest earned in a savings account is taxed as income.

    However, your situation is different than most where you are an entrepreneur with variable income. In your case, I think it makes a lot of sense to have an emergency fund as every month is different.

    Just some more food for thought.

    FT

  19. Sarah says:

    The net worth difference really isn’t that big.

    $1000/yr. earning 3% instead of paying off a 7% mortgage = a whopping $40 loss

    Instead of paying off a bad credit card at 27% (the extreme, short of payday loans) = cost of $240

    This assumes that you put all that money in the account at the beginning of the year. If you accumulate it over time, obviously the loss will be less.

    I agree that some folks can’t handle it psychologically. This would probably be best for someone who’s already made the basic commitment to debt reduction, done some lifestyle changes, and, having gotten used to it would like a little added security. I’m doing this right now due to some weirdness in my job situation, and it is tempting to shave a little off the edges, but so far I’ve basically kept on target.

  20. FishMama says:

    I would agree with Ken and KC. Dave’s way works if you follow it.

    We tried it this other way, falsely thinking that we had a cushion and that it was better to get the higher earnings off our mutual funds. But, the motivation to pay down the debt was really very low. We had to feel the pain a little bit in order to get motivated. We’ve got our $1000 emergency fund. Since my husband is self-employed, we save toward the next month’s expenses and then whatever is over that goes to the snowball. If “life happens” as you say (and with five almost six children on one-income, it does) then we stop the snowball for the month to take care of business. Then we start back up where we left off.

    I think one of Dave’s great points of this is to motivate people and get them intense about killing the debt. We’ve paid off $10K in the last 12 months, and that includes changing jobs and adding a sixth child. The freedom we feel now is SO MUCH GREATER than when we had more cash in the bank.

  21. Stephanie says:

    This is kind of how I’m looking at the way I’m paying off my debts. I know that my student loans are growing from interest faster than my “emergency fund” is growing from interest, but I’m still slowly paying down my loans (even with the interest, they’re still getting smaller overall). And thank goodness I didn’t spend all of my savings on paying down my student loans…I was laid off a few months ago, and having that savings set aside helps with paying bills as well as keeping me sane. Once I go back to work, I can start putting more towards paying off the loans, but in the meantime, I’ll stick to the minimums…

  22. Frugal Dad says:

    I’ve tried using this method as well, but found that it made me feel a little less “gung-ho” about paying down debt because it took a while to accumulate an adequate savings balance to pull the trigger on larger debts. I decided to compromise and build up about half of my fully funded emergency fund goal and then start attacking debt.

  23. Caren says:

    I’ve read on some of Dave’s articles that the emergency fund is a minimum of $1000, you can bump it up to more depending on what your income is, especially those who make $100,000 a year. A $1000 must make a person like that laugh to save as an emergency fund. But, since I am reading Financial Peace (another one of Dave’s books), I am intrigued by your turn around on the baby steps. I think that’s something for me to think alot about.

  24. Jennifer says:

    I am a firm believer in the “debt snowball” approach. I used it myself 5 years ago to eliminate over 40K in credit card debt. At that point I was so far in debt that, if I hadn’t used the “snowball” approach, I would have continued to spend big if the money had been accumulating in a savings account. Now that I am debt free (except for a very small amount on the mortgage), I have more willpower than ever to avoid going back into debt. In fact, I’m now quite adept at savings and have at least 6 months’ expenses in an insured money market account. For anyone trying to get off the debt train, I’d highly recommend the “debt snowball” approach over the method Trent recommends in this post.

  25. I think there are reasons to use this approach and reasons not to. My personal experience was using the Debt Snowball to take care of the last bits of my debt, then to keep using (to this day!) Snowball techniques to build up my emergency fund as well as savings for particular goals.

  26. sunny says:

    I just bought a new car and paid half down and want to pay the balance in the next year. I was debating whether I should pay extra on the principle when making payments or stockpile in my savings account until I have enough to cover. This is the only debt I have except a mortgage which will be done next year. I’m leaning towards the savings stockpile now.

  27. Bob says:

    The first thing I thought of was what Benjamin described in the first comment, you’re just switching around the baby steps that Ramsey advocates. Once you have the 6 months of savings, why wouldn’t you throw it all at the debt every month rather than saving money to pay it in one lump sum? That really doesn’t make sense to me. Kacie is also right that in some situations Ramsey says to do exactly that (build the emergency fund over paying down debt), situations such as expecting a child or knowing that some large expense is upcoming.

  28. Actually, the snowball was first popularized away back in the early 1980’s by the famous Charles Givens who, despite his notoriety, did have many good ideas that saved people a lot of money. he advocated using the snowball (I forget what he called it) to pay off the higher interest stuff first.

  29. Margaret says:

    I have debated whether to “save” for large annual expenses (taxes, insurance) by paying the amount I would have saved on my credit cards, then using them for the payments. Overall, it would save me some interest. However, it is not a staggering amount, and really, based on my past history, not a good idea. So I will use a savings account for annual expenses, which in a pinch could double as an emergency fund (the expenses are spread out through the year), but I think I need the mental boost of seeing those balances go down every month.

  30. Odd Lot says:

    I agree with you that life happens unpredictably and that can certainly change your situation, but of all the approaches out there, debt snowballing has been the most effective method for my clients.

    There are lots of different ways to pay off debt, but the snowball approach can be very effective as long as the person trying to dig their way out has steady employment and a little bit of discipline. People seem to have a lot of success paying off their smallest bills and then applying this extra money to the next smallest bill as long as they haven’t accumulated more debt than they have income to cover.

    I think the main reason this is an effective approach is that you don’t have to ask them to pay more than they ordinarily pay monthly. You mentioned that a lot of discipline is required for the snowball effect but I have an alternate theory. Since this is basically the fastest way to pay off debt without forcing the debtor to sacrifice the quality of life that they are accustomed to it doesn’t require as much discipline as other approaches.

    Regardless, any approach that someone takes to get out of debt is the right one because it worked for them.

    Great post, Trent
    Odd Lot

  31. p says:

    “the emergency fund … (six months’ worth of living expenses)…”
    o m g ! I can’t understand how you talk of living in the real world and how things happen then go on to say, incidently, that you keep an emergency fund holding that amount of $$. First – how did you get that fund WHILE following your money management style, and second – beam me up Scotty, to that real world…
    Seriously, I wasn’t part of the ‘upgrading the minimum wage’ windfall, I make just enough to throw me over the limits for any type of help, the cost of living for me has increased dramatically due to rising wage scales, ceo’s bonuses, health care costs, fuel cost induced increases, etc. And my company of 30 years cut cost of living adjustments and pay raises years ago, reconfigured my 401k to shreds, and require higher copays for health insurance. This is my real world … for which I try to remain grateful.

  32. I have written a lot about this on my blog. I called it my crisis plan and I actually still have all the cash in savings still waiting for some hospital bills to come in to be paid off.

    There are a couple of things that might not allow this to work for some. First, the temptation to use it for something other than debt would be huge. Then you have the issue of continuing to pay interest on your other debts.

    In my opinion if you have several months of savings in the bank there is no reason to do this. I do not have a lot of income saved (only $1000 for my emergency fund) so, for someone like me it might be a good idea. However with the temptation to spend…. I just don’t know.

  33. Pearl says:

    I think this approach is very appropriate for me, a college grad with only student loan debt and pushing to make my music career full-time.

    I think when you aren’t doing the 9-5, you need a bigger cushion in case something bad happens. I’m lucky my interest rates are low, otherwise I would probably be throwing more money at the loans than I am. Good post.

  34. Gilora says:

    When I was in debt-repayment mode, I eliminated non-mortgage debts in the order of the highest monthly payment first. I figured the best way for me was to free up as much cash per month as quickly as possible so that if something unexpected happened, my monthly “nut” would be less. I was fortunate, however that none of these debts was higher than the low five figures and I had preferable student loan and credit card interest rates.

  35. Lindsay says:

    I think that it is a marvelous idea. In fact my husband and I decided to save cash rather than pay off debt. We recently purchased the family business and for business owners this concept makes great sense. We have 6 months living expenses in the bank and I am budgeting like crazy to pay of little debts(car, card, etc.) as we can. Hopefully we will be debt free by the end of 2009 except for the house and business and still have a huge chunk of cash in the bank. Keep up the great work, I love this blog. Thanks!

  36. almost there says:

    Some debt is good, meaning it is less than what one gets in savings. I bought a “retirement” vehicle. The last I hope to purchase for 20 years. The loan was 5% but I did a BT CC loan at 2.99% which is less than what my savings/EF is getting. If I had to I would pay it off but would rather keep it as the CPI (w) so far this year thorugh May is running 4.5%. So the money paid over time is worth less than what it was when originated.

  37. Aaron says:

    as much criticism as Dave Ramsey method gets, I can say from my viewpoint it works, reduce your lifestyle – beans and rice, rice and beans, stick to a budget and attack your debt with a vengeance and gazelle intensity. I tried the method listed in this post and I have been working two jobs for 8 years and was still nearly in $30,000 debt…and didn’t start out much higher than that at the beginning. Since I started the Dave Ramsey method last Nov, I will have paid off that $30,000 debt in about 8 1/2 months with getting a third job and living on a budget, because his method is just sacrifice for the short term to prosper in the long term. As much crap as people want to give Dave on his methods, I can say first hand they work…and you know when your broke friends are making fun of your financial plan you are on the right plan.

  38. Dave says:

    I did the debt snowball starting about three years ago and eliminated about $30K of debt (credit cards, car, and a “Dad” loan that I needed to settle a dispute with my first wife) in about 20 months. Then, my present/permanent wife and I turned right around -about a year ago- and bought a house (selling our condo JUST before the market went into the tank but doubling our mortgage, plus all the expnses that come with a fixer-upper) and got pregnant. We now have a beautiful 4-month old daughter and a nice house where we’d be happy to live the rest of our lives – but our savings is dwindling rapidly, the credit card balance is climbing ane with my wife no longer working, our income has been cut by over 40%.

    Now, we can handle this – I’ve handled far worse, so I know we can get through this. But the temptation to use our savings, as you’ve noted, is a big one.

    So here’s my idea: Our goal is to have at least 6-9 months of living expenses in an emergency fund, but we don’t want it sitting there so easy to get at. So the idea is to take 3 months worth and put it in a money-market account at a local bank and disable on-line access and check/debit card access – if we need the money, we’ll have to physically go there during banking hours and withdraw/transfer funds. The remainder gets put into CDs – 3 months expenses in a 90-day CD, another 3 months’ worth in a 6-month CD, etc. So we always know we have enough money -if we can just get to the bank- to last us 3 months, and when that 3 months is up, there will be another three month’s worth waiting. And should we be blessed with no disasters during those three months, we simply continue to roll the funds over into new CDs.

    Does this make sense? I would appreciate your comments. Please keep in mind, I have not actually shopped CD rates or anything – and the idea is not so much to be making piles of interest as to make the money hard to get but not THAT hard.

  39. JimmyDaGeek says:

    The biggest fallacy is not the 7% you are charged on your debt, but the 15%, 20%, 30% rate, instead. People who feel they need to use the debt snowball payoff method realize they got themselves into more debt than they think they can handle and need help to pay it off. The nice thing about the snowball method is that when the debt is gone, the cash is used to snowball into savings.

    Those of use with reasonable mortgage or car loan rates are already triaging our cash between retirement, savings, and debt service.

  40. DR Fan says:

    It seems like you haven’t paid off any debt so far but are getting ready to pay something off. I’d say get a little more into the plan before touting the benefits. I believe the pressure of not having the comfort is part of the magic that motivates those to pay things off sooner and to be more focus. I agree with Dave Ramsey.

    Thus far using DR plan I’ve paid off $15,000 and have prevented thousands of other dollars of debt by having my baby emergency fund to help where I’d previously use credit.

  41. Shareef says:

    I’ll be done paying off about $30k in debt. I used Dave’s debt snowball with a slight modification – I always placed 10% of my monthly take home ($400 in my case) into savings before paying debt. In effect, I used 90% of my income to live on and pay debt. Whenever a emergency came up, I had some money put away to use without disturbing my snowball.

  42. Michael says:

    I think the answer also depends on what KIND of debts you have.

    For example, if you have credit cards, auto loans, and personal loans, then using the Ramsey method is probably best because those are “bad” debts and need to be taken care of immediately.

    However, if you only have a mortgage or student loans, I can see the logic in building the six month emergency fund first.

  43. Ralph says:

    I think it is important that you take into consideration your personality. For example: I really like Ramsey’s approach, however, my wife is extremely concerned about having savings. The compromise, for us, is to do both – pay off debt while building up an emergency account, just as described in this post. This appeals to my interest in acheiving freedom relatively quickly, while satisfying my wife’s strong need for security (defined by having a sizeable emergency nest egg). Whichever route you take, you cannot ignore your personality and personal priorities. If an approach to financial freedom does not jibe with who you are and what you believe, you’ll never stick to it.

  44. Margaret says:

    Dave — I think that is a good and sensible plan. I haven’t shopped around for CDs either, but from what little I know, I suggest you only buy ones where you can cash them out with little or no penalty.

    DR Fan — you must be new to this blog. Trent has paid off a lot, and I recall reading quite some time ago that he uses this save up then pay off a big chunk method. It clearly works for him.

  45. Foxie says:

    I’ve decided to do somewhat of a variation of this lately. With my husband deployed, I have the option of making larger payments to our debt. Instead, I’ll save it up, see how much is left over after he spends some of it and figure out where to go from there. (He’s getting a hard top for his car, his motivation for getting through the deployment.) We also want to save up for a vacation, but I only want to go on our trip after our consumer debt is cleared. (Sometime next year.)

    It’s hard seeing my savings account balances come close to our debt amount, since it’s almost tempting to want to clear that, but I’d rather have the peace of mind in the savings.

  46. DR Fan says:

    Margaret/Trent – Sorry for some reason I assumed this was a guest poster. I realize Trent has paid off quite a bit of debt.

    I was taken back by the relative negativity of this article telling DR fans that they are wrong. Mathematically you are correct, but as Dave said if it was all about math we wouldn’t be in debt to begin with. I think you minimized the psychological benefits to the snowball method.

    On another note, I was somewhat upset in considering I have a plan that works why pick on it. Pick on those without a plan.

    I’m assuming at this point in time (after following the snowball plan for over a year) I’d be able to successfully use your plan. But I tried this very thing before starting the Ramsey plan and failed at it repeatedly, my will power, knowledge and straight mathematics didn’t help me. It was only when I found the Ramsey plan that I was able to build an emergency fund and defeat debt. When I was drowning I needed those quick wins to keep me motivated.

    Overall point, do what you need to do to succeed. I don’t know if Trent meant the article the way I took it, it just seemed to be written in a holier than thou tone.

    I will continue reading this blog because it is filled with valuable information and ideas. I just wanted to state my opinion.

  47. oldmiter says:

    @ DR Fan

    Were you kidding when you wrote that you were bothered by ‘a holier than thou tone’ in the posting?!

    That seems to be the only way the Ramsey-ites function, which is a major turn off to using his approach ‘religiously’.

    The post was fine and offered a nice alternative to some other choices. Maybe it’ll work better for some people, maybe strict adherence to the TMM is better for others. However, I don’t think it’s up to you to decide for others. When the DR crazies start going on about how his method is perfection and they ONLY way to go, I get genuinely icked out. I’m super happy it worked for you. I think his plan is best for people who are a bit older and haven’t made the right choices or have had things work out badly for them. For me who hasn’t been aimless in my choices or complacent in my finances, not so much and I’m happy to see this article providing yet another PERSONAL finance option and food for thought.

  48. Steve says:

    Having a bigger e-fund makes you feel more comfortable while you make huge debt payments: fair enough.

    Putting all your payments into savings until you have enough to lump-sum a debt: you’ve got to be joking.

  49. robartin says:

    I tried this briefly, but the savings account is just too liquid. There is always a need for those funds – something always comes up. I think it will tend to draw out the process of paying down the debt. Knowing that you DON’T have that security is what gives the whole process a sense of urgency and helps you carry through.

  50. Eric says:

    Interesting idea. However, I question the fact that most people will not have the discipline to not spend their debt snowball savings. If people were financially disciplined, they wouldn’t have a bunch of debt to begin with. Yes, liquidity is somewhat limited with Dave’s plan, but you will always have $1,000 in liquid savings at all time. Plus, if you were able to dramatically reduce your debt and get rid of payments, it would be easier to survive an event like a job loss.

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