Implementing the Debt Snowball: A Personal Journey

by J.D. Roth

This is the second of a five-part series about the “stages” of personal finance. Last Sunday, I shared part one: “Fumbling in the Dark”.

In June of 2004, Kris and I bought a new house. On paper, we could afford the upgrade. In reality, things felt pinched. For one thing, my consumer debt had grown to over $35,000. The increased housing payments didn’t help. But the straw that broke the camel’s back was the extensive remodeling ahead of us.

I have a vivid memory of sitting in the corner of a buffet restaurant, eating lukewarm lasagna while scribbling numbers on a napkin with Kris. We were trying to calculate how much we could afford to spend on the house. No matter how we ran the numbers, we had $10,000 in projects we wanted to complete when we moved in, and an expensive bathroom upgrade the following year.

I felt sick. Where could I find money like that? I didn’t have any savings. The only paths I could see led further into debt. I could foresee owing $50,000 by the autumn of 2005. I was no longer merely fumbling in the dark — I had fallen, and I didn’t know how to pick myself up.

A candle in the dark
Soon after we moved into the new house, I complained about my financial situation to my friend Mistie. She listened patiently, and then she loaned me a book: Dave Ramsey’s The Total Money Makeover. Dave Ramsey changed my life. The book was filled with stories of other people — regular people, just like me! — who had managed to overcome debt on average incomes. It was inspiring. “What have I got to lose?” I thought, so I implemented his debt snowball.

As I worked to repay my debt, I read a book another friend had given me: Your Money or Your Life by Joe Dominguez and Vicki Robin. This book also changed my relationship with money. It helped me to understand that when I spent money on comic books or videogames, I was literally trading time (or “life energy”) for Stuff. If I could reduce my spending on Stuff, I could have more time to do the things I wanted.

By sharing these books with me, my friends had provided a glimmer of light. I was still surrounded by darkness, but now I had a candle to guide my way. I was learning skills necessary to defeat debt and to build wealth. I had entered the first stage of money management.

The first stage
I didn’t master these skills overnight. It took time. I made many mistakes along the way. I suspect this is the same for most who are trying to move from financial chaos to some sense of order. During this first stage:

A huge part of this first stage was learning to live with mistakes. It used to be that when I did something dumb with money, I let that mistake derail me. I’d give up. I’d feel bad for spending money on something, but my solution was just to spend more money. Obviously, it is best to avoid these sorts of mental lapses, but it’s also important to be able to just move on, to vow to do better next time.

The first stage of money management is like learning to ride a bike. You fall down a few times, and you’re often unbalanced and clumsy. It’d during this first stage that you need the most support. You’re learning how to do this on our own. In later stages these skills will become habits, but at the start they take focus and energy. They take work.

For me, the first stage of personal finance definitely felt like work. Hard work. But it was rewarding.

A whole new world
Once I discovered that I had the power to control my personal finances, my attitude changed. Saving no longer seemed like a chore, but a reward. Repaying my debt was a slog, but it was a burden I was willing to bear. And the process of learning about money was fascinating, like discovering a whole new world.

In my mind, I was in the zeroth stage of personal finance until October 2004, when I first developed a plan to get out of debt. I was in the first stage of personal finance from then until my non-mortgage debt was eliminated in December of 2007.

What about you? Have you always had a good relationship with money? Or did you have a turning point like I did? How difficult was it for you to master the basic skills? At what point did you feel like you were leaving the first stage of personal finance? When your debt was repaid? When you had ample savings? Are there other skills you found useful during this period? What advice would you offer others who are struggling through these things today?

Note: This series is intentionally less “polished” than most articles at Get Rich Slowly. It’s a chance for me to think out loud, to explore the stages of personal finance with you, the readers.

Updated: 08 March 2009

Do what's right. Do your best. Accept the outcome.
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