Adopting the “Scared Straight” Snowball

December 30, 2007 In Debt | View Comments(13)

I was reading through some older posts on my favorite personal finance blog, The Simple Dollar, and I saw a post related to a debt snowball plan I’ve been wanting to employ myself. Trent calls it the “Scared Straight” snowball. Basically, the plan is to make minimum payments on all your debt and pile your remaining get-out-of-debt money into a high-yielding savings account. When the balance in that savings account exceeds the balance of your smallest debt by 30% transfer the money into checking and kill off that debt.

As Trent points out this is probably not the smartest (mathematically) way to approach the debt snowball, but for those of us with somewhat shaky jobs, or in one-income families, it makes for a better night’s sleep to have a few thousand in savings at any given time. I may make one slight variation to his plan and preserve a $1,000 savings threshold - so when my savings balance equals my smallest debt + $1,000 I will bring the savings balance down to $1,000 and pay off the debt. Another idea to consider if you have several smaller debts (like I did in the beginning) would be to group those debts together to make one larger debt. For instance, I had three debts under $500. If I was using the “Scared Straight” plan back then I would have grouped them into one $1,300 debt and used that as my target savings amount.


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    • 13 Comments so far

    1. Tips to Ebay Success | Part Time Income | on January 7th, 2008

      […] profits are also going towards my debt snowball plan and I am discovering even micro-payments here and there can drive down interest charges and overall […]

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      […] Dad presents Adopting the ?Scared Straight? Snowball posted at The Frugal Dad. Basically, the plan is to make minimum payments on all your debts and […]

    4. Meg on January 11th, 2008

      I think its a great idea. I’m not seriously in debt (yet, haha, those student loans are starting to stack up), but my credit to balance ratio isn’t looking so good. Anytime I found myself with an extra hundred bucks or so after I put it in my cruise fund, I put it into my credit card. But my mindset then was that “Oh, I just put in $200 on this card, its okay to spend $100 of it.” So it was more like 2 steps forwards and one step back. I plan on adopting the modified version (the pay-off buffer) of the Scared Straight. Thanks for the tip.

    5. Are Tax Rebate Checks Coming Soon | Consumerism | on January 17th, 2008

      […] rebate checks on frivolous needs. I don’t consider it unpatriotic to use your tax rebate for paying down your debts. In 2001, tax rebates for married, joint income tax filers was $600. Sure, that money could buy a […]

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      […] wardrobe. We empty the other envelopes at the end of the month to make an extra contribution to our debt snowball. This gives us a little extra incentive to try to stay under budget in each […]

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      […] great way to generate some quick cash to get that emergency fund in place, or to contribute to your debt snowball.  Here are a few yard sale tips our family has implemented over the years to have a successful […]

    10. Collecting Debt “Snowflakes” in Second Checking Account | Frugal Dad on March 18th, 2008

      […] “found” money throughout the month. At the end of the month I write a check to make an extra snowball payment on my debt with the lowest […]

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      […] miles to put distance between you and the distractions of home. However, if you are trying to get out of debt or build an emergency fund, taking a trip requires associated travel expenses, hotel stays, and […]

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      […] lucky enough to be notified ahead of time, use this advanced warning to your advantage. Put your financial turnaround on hold and quickly begin stockpiling cash. Here are a few ideas to guide you though this most […]

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      […] Start the “Scared Straight” Debt Snowball Plan […]



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