Monday, September 29, 2008

A Tweak In My Snowball Debt Reduction Plan

I'm reading Dave Ramsey's book, Total Money Makeover, and I've already come to the conclusion that I'm only going to have a partial money makeover. (A topic I will discuss in detail later.)

One example: My debt snowball plan is not exactly as Dave prescribes since I'm paying the same amount ($265) on my credit card every month although the minimum payment amount on my credit card goes down every month.

For those who are unfamiliar with Dave Ramsey's Snowball Debt Reduction Plan, I am supposed to pay the maximum amount possible on the debt with the smallest balance and pay the minimum due on the remaining debts. Once I pay off the debt with the smallest balance, I roll the amount I was paying on that debt to the debt with the next smallest balance, so on and so forth.

In my case, my car loan has the smallest balance. When the minimum payment on my credit card goes down, I'm supposed to funnel the difference to my car loan to pay it off faster. Alas, I have not been doing that.

The minimum balance on my credit in June 2008 was $265. Now, it's down to $250. I figured the extra $15/month isn't going to make much difference on my car loan payoff date, so I've kept paying the same amount on my credit card. (Another reason is because my credit card has a higher APR by 1.24%.)

This month, I think I'm going to do something a bit different. The idea was given to me by My Debt Blog's earlier post where he recommended paying credit card bills on the billing date rather than on the due date to save on the additional interest accrued. This makes total sense! Why didn't I think of this?

So starting this month, I've tweaked my plan as follows:
  • The next billing date on my credit card is likely to be October 6 with a due date of October 26. I'll pay the extra $15 a couple of days before the billing date. This should reduce the balance on the bill immediately.

  • Pay the minimum due around October 6 rather than a couple of days before the due date on October 26.

  • Repeat the process the following billing cycle
  • Hopefully by doing so, I'll save some money on interest payments on my dreadful credit card!