How the debt snowball plan reduces reliance on payday loans
Written on March 1, 2012 – 4:23 am | by David Jones
While being faced with a financial emergency such as needing to pay for an expensive medicine for your child or for a car repair in order to drive to work is always an unpleasant experience, it can be far worse if you don’t have any savings. One of the main reasons many consumers lack savings is that they are devoting too much of their income to paying bills, especially credit card debt.
To become financially solvent, you’ll need to do two things: start an emergency fund by paying yourself first with an automatic transfer into a savings account from every paycheck, and reduce your debt.
Ramsey recommends starting with baby steps toward financial security, so rather than focusing on saving three to six months of your salary for an emergency fund, start with a goal as small as $100 or $200. If you can set aside five or 10 percent of your take-home pay from each paycheck, you can build an emergency fund more quickly, but you may want to start with just a weekly transfer of $10 or $20 into a savings account. As you get used to the small amount you can increase it.
The amount of credit card debt owed to lenders in the metropolitan areas that were hardest hit by high balances in the past has been falling significantly in the last year.