When to Pause a Debt Snowball

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There are many times in life when you may need to go into “storm mode” and pause a debt snowball. A debt snowball is the way I approached paying down my debt.

Paying down your debt from the smallest amount to the largest allows you to have small wins frequently. This momentum keeps you motivated to pay down your debt. 

Knowing the best way to manage debt repayment during a crisis can help you to have more cash on hand when your budget needs to be lean. 

Storms will pass, and having the tools to weather them will help you to come out of them in a stronger financial position!

When to Pause a Debt Snowball

• When you lose your job
• During a pandemic
• When you lose a spouse or loved one, which leads to a financial transition
• During a divorce
• When you need to hoard cash for a major life event such as the birth of a child
• After an event such as a flood, or other “act of God” scenario

Debt Repayment During a Crisis

The last thing you want to think about after a crisis is paying down your debt. Any of the above situations can be a major setback if you don’t have 3-6 months of savings in place, or if you live paycheck to paycheck. 

Pausing a debt snowball during this time can help you tread water until you get back on your feet. 

The first thing to do is to make a list of your debts from smallest to largest, their minimum payments, and their due dates. This will help you to know exactly what you owe and when you owe. Knowing this information can help you formulate a plan.

Second, see if your lender will let you defer your payments. If you can’t pause your debt payments, then ask your creditors to work with you. Ask what happens if you can’t pay your debt. I would note this on your debt repayment list. Planning for the worst will help you work through the storm.

I have asked for a deferment before. I did this with a credit card and was granted time to pay them back. This allowed me to breathe and refocus my energy from panicking to finding a solution.

Another thing you can do during a crisis is evaluate your finances to see if you can keep paying your debt. Try to pay just enough to cover the monthly interest so that you can keep your debt from growing.

After my second child was born I decided to not defer my student loans. I didn’t want the interest to make the debt grow, so I paid just above the amount that the monthly interest accrued to. Paying the minimum amount under my Pay as You Earn plan was a fall back plan. 

Find Some Cash

Analyze what cash assets you have! Does someone owe you money? What is the balance in your HSA or FSA? Do you have credit card points you can turn into cash? Make a list of all the things you can liquidate, such as a savings bond that you may have, and use this to determine your current cash cushion.

Finally, try to make some extra cash. Sell items you no longer need or use on the Facebook marketplace or other online platforms. I have had great success making extra money this way. I have also done part time side work to get me through lean times. Use your skills and unload unneeded items to help rebuild your cash flow during a crisis.

Control what you can control. Take a step back from your situation and make a list of all the things you can do now to regain control over what is happening. Not taking drastic actions like cashing out your 401k or making rash decisions, such as getting a payday loan, will help you in the long term. Always keep your long term goals in mind.

Mastering your crisis money mindset will help guide you through your financial storm.

How to Prepare for a Crisis

Life is unpredictable. You never know when the next storm will come. The things I have done that have prepared me for the many financial situations I have gone through are:

1. Have more than an $1,000 emergency fund. I have a six month emergency fund. If that is too much for you, aim to have one month of expenses saved. You won’t regret it!
2. Have sinking funds in your budget. Sinking funds are a great way to plan for expenses that don’t happen on a monthly basis. For me, this is the cost of propane. I take the annual cost of propane, divide it by 12, and then put this number into our monthly budget so that this expense can be planned. It will save you so much money in the long run having sinking funds.
3. Cut all unnecessary spending. Get rid of your cable and use an antenna for TV. I have done this and I don’t miss cable at all. Print out your last three months of bank statements and see where you can trim the fat. Are you spending too much on eating out? Decide on an amount that won’t make you feel like you are compromising what you value in life. The best way I have cut unnecessary spending is by decreasing my spending slowly over a period of time. I did this so that I could financially position my husband and myself to live off of one salary. You won’t notice the difference if it isn’t life shattering.
4. Start a side hustle. Last year I started selling digital products on Etsy. This has allowed me to save $500 per month in our 6 month emergency fund. I monetized my budgeting skills I learned as an accountant. I thought that the only way I could make side income as an accountant was to do bookkeeping or taxes. When I learned how to make money through Etsy I was hooked! There are many side hustles you can start to supplement your income. Sit down and make a list of all of your skills. Then decide how you can monetize that skill. You may surprise yourself!
5. Maximize your income. The best thing I ever did for myself was maximize my income. I come from a lower income family, and decided at a young age that I wanted to use my love of math and business to make a living. Going to college and getting a degree in accounting was how I could leverage what I loved into making a great wage. After I finished college I decided to pursue a professional certification to put me into the next wage bracket. It helped me to make $20,000 more a year. Finally, always ask for your worth. Never stop believing in yourself. Think of ways you can maximize your income. Start pursuing a certification, or brushing up on the newest skills in your field today!

“Never let a crisis go to waste.” – from “The Power of Habit” by Charles Duhigg

Develop new habits to prepare yourself for any future event that could come your way. Work towards putting yourself into the best financial position you can.

Push Through the Financial Storm

A financial crisis can strike at any time. It doesn’t have to be dire if you take the necessary steps to plan your path to success. If you find you are in a financial crisis now, take the time to take a step back and evaluate how bad of a position you are in. Pause your Debt Snowball. Make a list of all of your resources. Then think rationally about the best way to tackle your debt during this time. 

The editable PDF debt snowball tracker I have in my Free Resource Library will help you get started on tracking your debt! 

Use the ideas I gave above to think of ways you can prepare for any financial storm that comes your way. Do this today. This will guarantee that when the next storm hits, you are sheltered from it by your rock solid plan!

Need a budget to get started? The budget I created for myself has helped me to pay down $65,000 of debt and counting!

Have you gone through a financial storm? Were you prepared? If not, what would you have done differently?