Friday, March 9, 2012

Debt Tsunami

The next time you have a few minutes google debt + natural disaster of your choice. It's kind of fun. But not right now, you're busy reading my blog.

The final installment of our debt elimination journey has us riding the waves of the Debt Tsunami. Adam Baker claims it's the "ultimate method to pay off debt" by tapping into our emotional connection with our credit cards. This sounds like it's about to journey into "My Strange Addiction" territory. The Debt Tsunami is "about paying off your credit cards in order of their emotional impact" regardless of their balance or interest rate.

Mr. Baker contends that the snowball and avalanche methods won't work if they don't correlate with your specific personality type. For example, "logical" people usually prefer the avalanche method because it makes sense to pay off high interest cards first. The method assumes you are a mathematical person who can detach yourself from the emotional side of debt. The snowball method works if you're someone who's motivated by little victories. But what happens if you're neither (or both) of those people?

In the argument for the tsunami, Mr. Baker references two scenarios which both involve money lent by a friend or family member. This scenario doesn't apply to me at all, so I have some trouble identifying with the "emotional side" of my debt. But I'll try. Let's go through his step-by-step strategy:
  1. Create the initial burst of energy. Oh, look, "start a blog" is one of the options. (double check!)
  2. List your debts from smallest to largest including interest rate

can i put "creates awesome tables in paint" on my resume?
     3. Focus on the emotional connection with each debt. Apparently I should be closing my eyes and imagining what it'll feel like to pay off each debt, but I'm at my desk, so that's not going to happen. Other questions to focus on:     
      a. How long will it take to pay off?
      b. On what did you spend the money? .
      c. How much of a burden is this particular debt in your financial life?
      d. Is it secured or unsecured?

   4. Reorder your list based on potential emotional impact - Mine would be in order: 1, 2, 3, 4. There is a caveat here - "order the debts by how awesome it'll feel to eliminate them combined with how easily you can actually get that result." Eliminating Card #1's debt is not going to be easy, so there's a wrench thrown into my list.
   5. Head immediately towards shallower water: "The only way to build momentum is to go as fast as you can towards shallow water." Here is where we reduce spending & budget better in order to apply more money towards the debt payments.

While I appreciate the ideas behind the Debt Tsunami, I don't think it's right for me in its entirety. Instead, I'll combine it with parts of the Avalanche & Snowball theories to create my own Debt Meteor program (kudos to my co-worker for that one). I'll tackle the balance on Card 3 first, since it has both the lowest balance and the highest interest rate, but one of the lower emotional connections. Then we'll move onto Card 1, which has the higher balance, interest rate, and emotional impact. From there we'll go to Cards 2 & 4. I'll tweak the plan if and when it's needed, since I need to set myself up for successes, not failures.

Which program works best for you? Anyone else inspired to create their own debt program this weekend?

Day Eighteen Spent:
$28.56 gas
$5.00 lunch
$32.10 daycare for Molly
Day Eighteen Saved: $0.00

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