Save Money, Make Money Challenge

Hi Mary Ann!

Although I've never read the book everyone is refering to and I'd never heard about the "snowball" term until today, I've always been told to pay off the lowest bill first.

And, that snowball thing sounds really smart to me!

 

I don't care what worked for the so called Experts. The only expert for my kids is Mommy!

 


 

 

Snowballing is you pay off the lowest with the highest interest bill first Then you  take that payment and put it on the next highest interest or the lowest balance. Then you keep doing this until  all the debt is paid.

Snowflaking is when you start with a payment and add a little to the payment each month. This saves you interest and in the end pays off the bill. Then you snowball that payment into another bill.

Both works very well.  In my case the lowest amount with the highest interest is not the way to go.

I am looking for money to snowflake or snowball and after a few hours with a pen and paper my second bill a higher balance and a lower interest rate is the first one I am going after but in the end it will save me a lot more money then the first bill.

I will explain:

I have earmarked $200.00 extra to put on the bills a month.

If I add money to the first bill with the lowest balance and the higher interest in a year the normal payment will be down by around $20.00 because the monthly payment is 1% plus interest.

The second bill is a lot higher balance with a lower interest rate but the payment is 2% of  the balance. After a year the monthly payment will be down by $70.00 a month.  

So it is smarter to pay the extra to the second bill. Gives me more money at the end of the year to snowflake or snowball into another bill.

Mary Ann

The general rule is to pay off the highest interest rate credit card first. If I am understanding your post correctly, in your case, you basically have 2 balances that are at 3.9% (once you've paid the $1500 on the largest balance). Here's how long it will take you to pay off each credit card:

-$2662 at 3.9% ($37/month): 6 years, 9 months

-$5526 at 3.9% ($91/month): 5 years, 8 months

With 2 balances at the same rate, you may want to just plan to pay off the largest balance first.

Go to Bankrate.com's "What Will It Take To Pay Off My Credit Card" calculator to crunch the numbers: http://bankrate.com/brm/calc/creditcardpay.asp

Hi,

It's always best to pay off whatever has the highest interest rate. Even when you may feel that it's a small amount, it will pile up while you try to lower down your other bills.