The Fatal Flaw With the Dave Ramsey Snowball Method

Hubby and I have been using the Dave Ramsey endorsed Debt-Snowball method over the past few years.

The debt-snowball method is a debt reduction strategy, whereby one who owes on more than one account pays off the accounts starting with the smallest balances first while paying the minimum on larger debts. Once the smallest debt is paid off, one proceeds to the next slightly larger small debt above that, so on and so forth, gradually proceeding to the larger ones later

I had the usual assortment of debts most college grads leave with; a couple small store credit cards, one larger credit card, a car loan and student loans of a couple flavors. I did some research and talked him into the plan.

Mostly, I have to admit, the method worked. I’ve always been a good with budgets, so figuring out our financial starting point and figuring out where our money was going was pretty easy. We did real well for the first 3 months, then we found out we were pregnant. Immediately we had to go back to step one of Dave’s Baby Steps and double our emergency savings from 1K to 2K to handle the medical bills. After baby #1 we got back on the debt snowball for a year and a half. Then we found out we were expecting baby #2, and we’d switched to an HSA health plan. With that health plan we knew we’d pay the first 4K in hospital bills, so once again we had to back to Baby Step #1 and build up our emergency savings, this time diverting most of the build up to the HSA account. Some had to go to the emergency savings that we keep in cash on hand, to prep for the 2 month maternity leave with no pay.  Needless to say, the snowball was obliterated.

Finally, back to work after baby, checks rolling in, utility bill pulled back from the brink of shutoff, we got back on the Snowball method. In our first couple of goes, we’d eliminate all of the store cards, the Federal Student Loans and about half of the credit card, and just from time elapsed and regular minimum payments, the car loan was getting close to done.  So we focused on that credit card and car loan and got them paid. That left only my Obscenely Bloated Private Student Loans.

The problem is, the past couple of months, the car has been paid off, the other debts are gone, but we weren’t coming up with all that extra money to throw at the OBPSL. So, like the geek I am, I went to the checking account and compared numbers for the past few months on all of our spending categories.

Pretty much every other cost is increasing. Maintenance on the car, it’s a decade old now with over 200K on the odometer. My mechanic was warning me last time that the timing belt will probably be the next thing up for repair. Plus, saving for a new car, sure we have our emergency buffer savings, but it can’t be the emergency buffer savings AND the down payment or total payment for a new car. Right? So there goes part of our snowball.

That emergency savings is also not going to handle any sort of retirement, and I’ve passed the 30 mark, so I’ve had to start throwing money down that pit. Why are all 401K’s stock market based? Am I really the only one convinced we’re going to lose it all in some inevitable stock market collapse when the empire can’t grow anymore? That’s another post though.

The biggest thing was our grocery bills. I thought, no way. I garden, a LOT! We cook from scratch, like flour and eggs and stuff pulled from the ground 5 minutes ago scratch.  And we were still blowing our food budget out of the water. All of our snowball was going there. And then it hit me, when we made that food budget, it was two adults and one baby.  Now we have 2 little boys who eat their weight in fruit and yogurt and milk and butter and cheese and two adults. I took my search online to see what a reasonable budget would be for a family of four. Wouldn’t you know it, that’s a common question and there are monthly reports put out detailing that sort of information.  Really intriguing if you want to see where you fall on the bell curve. Sept 2013 Report.

So, there it is, my super intuitive insight into the Dave Ramsey Snowball method. It works until the rising costs of other things wipe out your snowball. Whether that’s food or health care or housing.

That said, of course we’re better off in general for having done it, and maybe we just didn’t have enough debts to really see the full benefits. We’re looking for creative ways to bring down our costs in other areas, maybe we can rebuild the snowball from other sources.  How is your debt payment going? Got a great strategy or tip? Shout out in the comments!

- Calamity Jane