About a month ago, I reviewed the Debt Snowball that we teach in our nine-week Bible study (Navigating Your Finances God’s Way). The Debt Snowball is a systematic method of paying off debts by paying off the debt with the lowest first, then once that debt is paid off, using that amount plus the minimum on the next highest balance, while paying the minimum on the rest of the debts. When I am in front of people for personalized financial coaching, I review this system in order to organize their debts and help them kick-start their journey to financial freedom.
I started thinking about this system recently when I was thinking about some of our own payment schedules. I never considered us to be in debt, but we seem to have this “rolling” payment that does not go away. There is no interest on this payment, but it’s rather annoying, frankly and I think we should be using the debt snowball in this situation, too.
It started two years ago when we had a child in preschool and we were paying a monthly tuition payment. Once she finished pre-school, I was very excited at the possibility of redirecting the tuition payment to our monthly mortgage payment so we could accelerate the mortgage pay off. But, alas, our oldest was ready to register for her class trip to Washington DC and miraculously, the monthly payment was just a couple dollars more than the tuition we were paying. We didn’t even skip a month, we just went from paying for pre-school to paying for a class trip. No sooner had we paid off the balance of the class trip than our orthodontist decided that our oldest was ready for braces! Just as before, we didn’t even skip a month, but the money went from paying for a class trip to paying for braces.
When services are rendered on a monthly basis, like pre-school or braces, we tend look at it more like a monthly bill rather than debt. In our case, each time the payment fit nicely into our working budget or we probably wouldn’t have signed up for pre-school or put our child in braces. In these situations, it is very easy to go on “cruise control” and keep our savings in the bank for a “real” emergency. It may seem more logical to leave our money in the bank if the school, the travel agency, and the orthodontist were going to allow us to pay a certain amount without the penalty of interest, especially when the services are rendered over time. However, because we are to “owe no one anything” according to the Bible, if we are able to pay, we should pay in full the moment we sign up (and we might even receive a discount as a result!).
Granted, this is not always possible, especially in the area of medical bills where an illness or an injury may rack up a significant bill that was not anticipated, even after the insurance has paid their share. Thankfully, the hospitals and doctors offices are usually fair about extending payment plans in a similar manner, offering zero interest and dividing the balance into equal payments over a period of time until the bill is paid. Of course, when faced with a situation such as this, it is imperative to treat it as a debt and offer as much toward the bill as is available in your monthly budget. Remember, there is someone on the other end that has provided a service and is waiting for their payment.
“Owe no one anything, except to love one another; for the one who loves another has fulfilled the law.” —Romans 13:8