A Reverse Debt Snowball

Posted by Mrs Money on December 15th, 2008

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snw.jpgAs we all probably are aware of, saving money versus paying off debt is a hot topic among personal finance bloggers. I recently came up with a financial plan that should help me be prepared in the instance I lose my job due to the merger. I had initially decided that I was going to pay off the last remaining student loan over nine months. As the economy keeps getting worse, I can’t help but feel that maybe I should hang on to as much extra cash as I can. I decided I’m going to change my plan of attack.

I’m going to do a “reverse debt snowball”. I’m going to take the money that I was going to put towards that student loan into our savings account. That way, if we absolutely need it, we’ve got it. If not, in six-nine months, if things are better I can take that money out of savings and put it right onto that student loan.

I thought about starting a separate account to keep those funds separate, but I currently am earning 4% on my savings account at my brick and mortar bank. I would rather earn that 4% interest and have the peace of mind than not have that money later on if we absolutely need it. I think this will be the best plan for us, but I know it’s going to be hard to take that money out of savings and pay on the loan. Of course, if things are looking up then I think it will be much easier.

Here’s hoping that the economy turns around in a few months!

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4 Responses to “A Reverse Debt Snowball”


  1. I think that is a good plan. How much are you paying on your student loan?… just out of curiosity.

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  2. Kacie says:

    I think this is a great way to do it, given the economy and circumstances!

    We’re doing a similar thing to take care of our car loan. We’re setting aside money to throw at it once we’re comfortable with parting with it.

    As much as I want to see the balance go down, I don’t want to get into a jam.

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  3. MIss M says:

    That is how I tackled my credit card debt and car loan. I did end up using the money to pay off the debt once I had enough saved, the improved cash flow offsets losing the big hunk of cash. 4% is pretty good right now, I agree your bank sounds like a good place to stash cash.

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  4. Mrs Money says:

    Ashley- The minimum payment is $180 a month. I was going to try to pay $700 a month or so to get it paid off quickly. I think that’s a pretty hefty payment each month!

    Kacie- Thanks! I love the feeling of having less debt, but I think peace of mind overrules that right now. It just feels good to have that money “just in case.”

    Miss M- That is a great way to look at it! I hadn’t thought about that. Once I pay it off, it will free up $180 a month! I am excited about that!

    [Reply]



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