Regardless of which side of the fence you sit on when it comes to how to implement a debt snowball, there is one thing we can all agree on–it is highly motivating to see debt balances falling. So much so that when you have to put the snowball on ice it can be a bit demoralizing.
Murphy Has Set Up Shop at Our House
Over the weekend I mentioned all the things that have gone wrong over the past few weeks, and the various hits to our emergency fund. Fortunately, the emergency fund was there to cover these expenses so we didn’t have to turn to credit cards, or try to cash flow them by completely rearranging our budget. Unfortunately, we will now have to put debt repayment on the back burner while we rebuild our emergency fund. I’m just not comfortable living with a reduced emergency fund and throwing every extra penny at debt. With a reduced emergency fund the next rash of emergencies could deplete our savings entirely and force us to once again turn to credit cards.
Here are some of the steps we’ll use over the next few weeks to get the emergency fund back up to our $3,000 goal:
- Pay only minimum payments on credit cards. Instead of piling anything extra on debt, we’ll be diverting it to savings in the short term. After attacking debt so aggressively the last few months this will prove difficult.
- Snowflake any extra money into savings rather than towards debt. I normally take any found money (snowflakes) and apply them directly to the debt snowball as they are received to boost the amount going towards debt repayment each month. Now, I’ll pile up those snowflakes in savings.
- When the emergency fund balance reaches $3,000 we will turn our attention back to our debt reduction plan. I’m not sure how long it will take to get the emergency fund back to a fully funded status. Thankfully, we didn’t have to dip too far, and I have a couple payments due for some freelance writing work I’ve completed recently–that should help.
Flipping the Switch
I believe this exercise is actually good for us (not that I want more visits from Murphy). When we are finally debt free we will need to flip the mental switch to savings rather than debt repayment, without increasing our spending. Sure, we might add back a few small expenses that we’ve eliminated to become debt free, but for the most part our budget won’t change much. Shifting from debt paying to savings mode and back again should help us get comfortable with both styles of living on less than we make.