Snowball Debt Repayment

Debt Snowball Repayment Cartoon

This Moneysense article caught my eye about a snowball debt repayment. I had always thought the best way to repay debt is to tackle the debts with the highest interest rate and total payment (eg credit card with 21% interest paid down faster than student loan with 7%). Gail Vaz-Oxlade makes it a bit more precise, she promotes paying the debt with the highest interest rate down as fast as you can, while maintaining the minimum on your remaining debt. Once your most expensive debt is gone, snowball the old payment into the payment on your next most-expensive debt. Carry on until you’re debt free, and ultimately stay that way!
I had always thought Gail’s way is the only best way, but financial Dave Ramsey, proposes a slightly different version.
With his way, you start by listing your debts smallest to largest by amount owed. You don’t worry about interest rates, it doesn’t matter if one debt has a 2% rate and another one has a 22% rate.  Then you pay minimum payments on all of the debts except the smallest one then attack the smallest debt with a vengeance. Once it’s gone, take the money you were putting toward that debt, plus any extra money you find, and attack the next debt on the list. Once it’s gone, take that combined payment and go to the next debt. You knock them out one by one.

Mathematically, you pay less interest with Gail’s method because you are tackling the debts with higher interest, but Dave’s method may be extra motivational for those who need to tackle debt psychologically.  Dave’s method is geared towards behavior modification. If you start paying on the largest debt, you won’t see it leave for a while. You’ll see numbers going down on a page, but that’s it. Pretty soon, you’ll lose steam and stop paying extra, but you’ll still have all your debts hanging around.  For extra motivation, he suggests to ditch the small debt first, so you see progress and makes you feel accomplished faster – that one debt is out of your life forever. Soon the second debt will follow, then the next. It builds momentum, which may be very useful technique to those who need the extra nudge to get rid of debt. Sometimes, life is like that, it’s not HOW but whatever that works!

Whichever way you choose, the goal is to be financially independent – which being debt-free is necessary.  Right now, my biggest debt is my mortgage, in pricey Vancouver, is astronomical. I am visualizing more income so I can pay more back to the mortgage :) !

The above cartoon above is great for personal finance websites, blogs, Facebook, Twitter, Pinterest, Powerpoint presentations, newsletters, e-books, PDFs, and more! Click on the cartoon to purchase royalty-free.



Financially Savvy Magazine – MoneySense (Canadian content)

Although money can’t guarantee happiness, I strongly believe without adequate money you can’t be happy.  Because to be happy, you need adequate shelter, clothing, and food (you may disagree, if you are a nirvana-seeking spiritual kind of guy/gal). And you need money to purchase these.

If you are just starting to get your finances in order and have no clue what to do, there are couple of good & fun reads for you.  I recommend the MoneySense magazine and related books, for you to start reading more about how to be good friends with money.

I never really enthusiastically like to read hard core books but preferred books with lots of visual contents (therefore I am a cartoonist). If you are like me, then I recommend starting from a magazine. MoneySense
magazine is a great way to start learning how to flex your financial muscles, and it’s quite a fun read too with lots of hip illustrations and real life examples.  It has a series “Are they on Track?”by Julie Cazzin, who shows real life example of couples with their financial quest.  For example, in this summer issue, Julie features a young couple who just bought a house and would like to know if they can pay off the mortgage by they turn 50. You can either subscribe to the magazine
, or why not save money first by checking out their on-line site? You can read couple of articles for free per month. It’s a Canadian magazine, so it’s best for Canadian residents, but it offers a lot of useful financial savvy tips for all nationalities. Bonus: If you are a Rogers client, you can subscribe it for cheaper.

Once you start getting into the personal finance world, you’ll start to want to save and invest that money. To build an investment portfolio, the magazine will provide you many examples, but if you’d like to read more specifically just about investments, I recommend you to read their Guides, such as

The MoneySense Guide to the Perfect Portfolio (2013 Edition). This will teach you in detail which funds to buy. Moneysense loves index funds. I also bought the MoneySense – Guide to Investing in Real Estate before purchasing my first home. It taught a lot of concepts that I didn’t know, and it made buying a house for the first time less stressful as I compared my steps with the steps outlined in the book.

Happy Reading!