Thursday, October 18, 2007

Another Devient Twist on My Debt Snowball

One of the things that most inspired me to start taking my personal finances seriously was the realization that all the money I'm paying to the credit cards and my car payment in interest, could be money that I was investing. Take my rather modest car payment of $350, currently $70 of which is interest. I could be opening mutual fund with just that and paying myself instead of a bank. So I really got pumped about getting out of debt thinking about how it was eating away at other better uses for my money and my potential to be prepared for things.

While the credit cards are my main concern, there is also that previously mentioned payment on my sweet 2004 Jeep Unlimited (you can tell I'm not going to sell it, can't you?). Plus the wife's student loan. I'm just not convinced that waiting until all of that is paid off to start my IRA going is a good idea. I do want it gone and have been making a lot of headway, but building a slow momentum towards investing as the debt clears might not be a bad idea.

So I had an idea, and I think it is a good compromise to the situation. I will celebrate killing off each credit card debt with an enrollment in another mutual fund in my IRA (and my wife's). This will only take $50 dollars out of what I can apply to other debts, and I can get some rewarding satisfaction of meeting two goals at the same time. Dave Ramsey would say that would detract from your focus on paying off debt, but it he also says the psychological element is the most important thing in personal finance.

But this will give me an emotional payoff now, and hopefully a financial one later. It is also giving me a major incentive to payoff the next creditor in the debt snowball, because let's face it, investing is SO much more fun than paying off debt. Of course, it would be a bad idea if I had crushing debt, the kind that makes you want to call The Dave Ramsey Show. But this is only slightly encumbering debt, and I do have a plan to get rid of it. I'm also trimming the fat and trying to earn more, so it's not like I'm completely robbing the snowball's momentum to do this.

So this month's IRA fund selection is in honor of the retiring of my beloved Lowes card. I guess since I put it in a block of ice at the bottom of my deep freeze, it's already retired, but I am paying it off this month. I love my new kitchen though, and still don't regret it too much. I will thaw that card out and close it when I have that Fully Funded Emergency Fund. Until then let me say I own a very old house and that is probably enough said.

Next up is the Sam's Discover Card, when its paid off I will replace the bill with another $50 automatic monthly deposit into another T Rowe Price fund like I did when I opened my IRA. Of course, the holidays are coming up, and cash flowing them (for a change) may mean delaying that double payoff until after the new year. The good thing is that I'm already working and carrying through on what would probably be my resolutions. I've even lost 20 pounds!



Anonymous Mrs. Micah said...

I like the deviant twists--but then I'm not a purist.

Dave is all about psychology and if that's what psychologically important for you, saving for retirement, then I think it's a good move. Plus, you're still snowballing so you're getting out of debt. Once we pay off the car I guess I'll have to figure that out too.

5:06 PM  

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