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Author: xraymd Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308882  
Subject: Re: Snowball Date: 7/4/2007 8:29 PM
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Greetings, janicerand, the minimum to put on the cards not at the top of the snowball order is the minimum amount your statement says.

That said, many prefer to tack on a couple of extra dollars, or round to a x0.00-style number, just to be sure to top up the amount due.

Of course, on your snowball card, you must ALSO pay its minimum plus every spare screaming dollar and cent you can muster on top of the minimum! That's how you insure a steady ongoing paydown, especially if you have figured out your monthly allotment to the cards at the outset and THEN added your snowball amount to this. This works because with each ongoing payment (assuming you are not SPENDING on cards with balances and assuming your interest rates don't suddenly surge), you are actually shrinking the balances PLUS shrinking the minimum payments owed. Yet if you keep your total monthly payments at least level to the starting total payment, every time you pay, you will be taking a bigger and bigger bite out of the remaining principal balances because more and more of your payment will go towards principal as less interest gets generated by the remaining, shrinking balances.

It works best and fastest if your snowball card is your highest interest rate card because, DOLLAR FOR DOLLAR, the dollars with the highest interest rate attached to them are the ones that grow the fastest. Mow those down first and you rid yourself of the interest they spew at you. Think of it as an infestation: each dollar at 24.99% interest spawns 25 cockroaches in a year (or 2.08 cockroaches in a month), while each dollar at 7.99% interest spawns 8 caterpillars a year (or 0.66 caterpillars in a month). Say you owe $1000 that generates cockroaches and $5000 that generates caterpillars. For every dollar of the cockroaches you pay back in that month, you now have 2.08 fewer of them scuttling around you, while for every dollar of the caterpillars you pay back, there will be 0.66 fewer of them around the next month. Say your snowball is $700 per month and your minimum payment on the cockroaches is $50 while your minimum payment on the caterpillars is $250. So that's $300 you MUST pay, but your snowball is $700 - which is $400 extra dollars you can also pay.

So what you'd want to do is keep the $250 payment against the caterpillars, while putting $450 against the cockroaches. Why? Because wouldn't you rather kill off $450 x 2.08 cockroaches = 936 dead roaches the first month along with killing off $250 x 0.66 caterpillars = 165 dead caterpillars the first month AS OPPOSED TO killing off more caterpillars (meaning more of your snowball towards the lower interest debt) while allowing the cockroaches to fester?

Eeewww. That's why focusing hardest on your highest interest rate debt gets you out of the pestilence that much quicker. And of course once the cockroaches are completely exterimated with your highest interest rate debt paid off, the caterpillars now feel the full brunt of your $700 a month payments UNDIVIDED and just imagine how fast the kill rate becomes at that point!

Hope I did not ruin your appetite - but the more graphically you think of your debt as truly icky, the more motivated you become to pay it off in the fastest possible fashion and that really does ideally mean every available snowball dollar to your targeted debt while paying the minimum on all other debts in turn, all the while never reducing your monthly payment allotment until the bugs are dead, dead, dead.

xraymd
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