Step # 2 to the financial security: out of debt

The snowball effect is no secret that we live in a consumer society. And many times this consumption is the lifestyle we lead, which is usually the next

WORK EXPENSE EXPENSE WORK SLEEP SLEEP .... Does this sound familiar?

This is what Americans call "The Rat Race? or "The race of the mouse?, is that where we see a lot of wheel mice rolling day after day, without anything to do, trapped in this endless circle denotes, in many cases, despair. Financially, our "Career of a mouse? are the debts and interest, especially credit cards.

In the book "The Total Money Makeover?, Dave Ramsey talks about the steps you must follow to be financially stable. Although many things apply to what I preach on the blog (such as the emergency fund, that Dave Ramsey is $ 1000) his book is focused on people living in the U.S., where taxes, IRS, 401k, Roth IRA are common terms for Latin America but are not applicable. However, your debt snowball ™ if I find interesting.

According to Dave, to implement the debt snowball (translated as "Debt Snowball?) Should:

1. List all our debts (excluding mortgages) to a much smaller amount of debt. 2. Paying the minimum on all debts except the one with the lowest balance. 3. Placing all you can, even the smallest amount (if a single ticket or coin, good!) To the smallest debt. 4. When you pay off the smallest debt, you do not alter the amount you use to pay off debts, but begins the process again, paying the minimum on all debts unless the ranks queahora be the smallest debt.

This method generates much controversy, because it attacks the problem of interest will you be paying a small debt that has less interest than the big one, like a credit card, for example. Dave Ramsey explains: "The reason we work from the smallest to the biggest one is to have the change in attitude to debt: to remove a debt from him, however small it is (...) is preferred changing the attitude before the math?.

However, despite this and the comments in the web about the book was a little skeptical because I had always tried and never could get out of debt. After the strike of 2002-2003, had a debt in 3 credit cards, and how to pay was traumatic and long, maybe paying triple the debt (the full explanation would take a whole article, it may encourage me and discuss later).

Thanks to this traumatic experience, gave him the benefit of the doubt Dave Ramsey and applied the "snowball effect? and it worked for me. In 2005, we had approximately $ 18,000 in debt I was accumulating (2 credit cards at a bank, a bank loan personal) but 8 months out of them. I was literally shocked. After trying for years, I could do that in months, and with 2 kids and wife! Previously he was a bachelor, so I consider this flo extra effort.

Many of you are thinking now ... "but if I pay the minimum on my credit card, eventually repay the debt? ... WRONG! Here's an example with this simple calculator. Say we have a card debt of $ 1000, 25% interest (not far from reality in Venezuela, for example) and with a minimum payment of 5% of total debt, in this case would be $ 50 .

In this example, it would take 2.3 years to pay off your card! Assuming you do not reuse it more! And to top it off, you will have paid $ 307 in accrued interest. That's almost like paying the debt once and a half. The only beneficiary of this is your bank, if you heard! If only we paid for example, with a high car payment and a little more, say $ 10 extra, you could reduce the number of months and you should pay interest to your bank.

If you click on "For complete results data table and graph Including? You can view graphs and as the debt is paid. This debt was canceled if we consume and then the bank is not rich at our expense. The snowball effect if effective, can provide us with a sense that we are reaching a certain achievement, and that motivates us to continue canceling all debts.

Why should we get out of debt? Sometimes it seems obvious to ask the question, the reality is: we can not achieve financial security if you have debts that do not generate value, such as credit card debt, financing of furniture or electronic equipment (paid in 12 installments, we will fund the initial etc). Want to get 100% discount on an offer? Very simple, do not spend on that offer! Chances are you do not need this article, and only drives you is the fact that "offer?. If we leave our debts, we must take action.

In summary: 1) Start the snowball effect, ordering your debts from smallest to largest. Pay the minimum on all debts least in the smallest, there pay a little more, whatever, then cancel it and continue with the next, keeping the same level of payments. 2) Do not use the credit card until you pay off the balance, from there starts telling your bank that debited the full amount at the end of each month, this does not earn interest on arrears.

I hope to list all your debts and of course if you have any questions comments on the matter.

Other links of interest:

Dave Ramsey's site

Snowball Calculator (calculator online to use the snowball effect - in English)

8 ways to consolidate debts (published in bankrate.com)

Calculator for reduction of debt (Debt Reduction calculator) has two pages: The calculator and "Payment Schedule" which tells you that debt to pay and when. The best of this spreadsheet is that you can choose which method of "snowball" use, since you can use debt first girl, the most interesting at a lower interest, chosen by you, etc.. Check the red dots on the corners of the boxes for a commentary on what each box. You owe it to your father that you pay first? place it in the box and the sheet will do it for you.