Early retirement sounds great. Doesn’t it?!
But when? …and, the bigger question – HOW? Keep reading to learn how you can obtain financial independence using the debt snowball method.
What is FI?
Well, I had to ask the same question.
Financial Independence.
I was talking about this with my aunt and she was telling me about a Facebook group she joined – ChooseFI.
Hmmmm, that sounds like something I should check into, and I did.
Turns out, not only is there a Facebook group, but there’s also a Podcast (also called ChooseFI) and a website. There is a TON of great information, so be sure to check it out.
There are several books on the topic of becoming Financially Independent, but these three books are recommended reading from the ChooseFI experts:
Apparently, FI isn’t a new concept, so now the pressure is on to get caught up on how all this works, put the processes in place and MAKE IT HAPPEN!
So, I wanted to share something with you that I found while doing some research on FI.
Have you heard of the debt snowball? Obtain Financial Independence Using the Debt Snowball Method
This is where you pay extra (even a little bit) towards one of your existing loans and as each one gets paid off; you apply that old payment towards the next loan. You’re essentially chipping away at paying off your loans faster, which saves you hundreds of dollars, or even thousands, in interest expense.
There are a few ways to do this, and you will need to assess your specific situation to see which one works best for you.
- Pay extra towards your loan with the smallest balance
- Pay extra towards your loan with the highest interest rate
- Pay extra towards your loan with the shortest remaining term
Check out this simplified example of the debt snowball method.
Loan Monthly payment Balance Interest rate Remaining Term
Car loan $500 $25,000 2.9% 54 months
House loan $1,200 $125,000 4.5% 133 months
Credit cards $150 $8,000 15% 89 months
Making the minimum payments, you would pay back a total of $ 40,742.79 in INTEREST and it would take you over 11 years to finishing paying off all of these loans.
Using the debt snowball method and applying only an extra $50/month towards your loan, you can pay back all of these loans in only 101 months (nearly 3 years sooner!) and save over $7,000 in interest!
Here’s how it works.
If you would use the “smallest balance” debt snowball method and pay an extra $50 towards the credit card balance, you would have it paid off in 55 months instead of 89 months (2.8 YEARS sooner!). Then, at month 56, your credit card bill AND your car loan will be paid off. Apply that $700 extra towards your house loan and it will be paid off in month 101 instead of 133 months (5.6 YEARS sooner!).
It is AMAZING what just $50 extra
per month will do to
help you save money AND
get you out of debt a whole lot sooner!
Imagine what you could do if you applied an extra $100 or $200 per month towards your loans! Just $50 per month gets you to being Financially Independent 5.6 years sooner!
THIS is what I wanted to share with you – the really cool online DEBT SNOWBALL CALCULATOR by FinancialMentor that will help you figure out which method is best and shows you exactly how to make it happen!
Try this calculator and watch the magic happen. I couldn’t believe it until I tried it. They have several other useful calculators on the website – debt, investment, savings, retirement, etc.
How did we make it happen?
We had been putting $300 each pay day into a savings account, which is earning .0025% interest – stupid! We switched to applying that extra $600/month ($300/pay period) towards a loan. Using the Snowball Method, we were able to pay off our loans 8.5 YEARS sooner! And that’s how I was able to retire at age 51!
Set a goal and get to work on paying off your debt.
And if you haven’t signed up for an Rakuten account yet, what in the world are you waiting for? Get cash back on nearly every online purchase you make. Since I joined, I have received over $700 in cash back, just by using Rakuten when I’m shopping online!
Sign up using my link and you’ll get $30 from Rakuten once you spend at least $30 and I will receive $30 for the referral! Once you’re signed up, refer your friends and you’ll get $30 for each referral. Use that $30 towards your monthly loan payment and you’ll be even closer to financial independence. Small amounts add up! Try it!
Tell us how you’re making it happen.
I’d love to hear how you are working toward becoming Financially Independent. Share your secrets, tips and tricks in the comments below.
