As I provide to you our July 2019 debt snowball update, you will notice that there is a massive decline in how much debt we paid off in comparison to other months. We’ve been pummeling through our debts like crazy this year! We’ve cut back in several areas, which has allowed us to toss more money at debt. But mainly, I am doing surrogacy, which comes with compensation. I am 8 months pregnant and we are using alllllll of that money to pay down our debt, thus the drastic number changes.
However, we have made the decision starting with this pay period (July 31) through the baby being born in September and my maternity leave to pause our debt snowball for us to stockpile cash. While this is not our baby, I will still need to recover and will be on maternity leave. Between now and mid-to-end October, all extra money is going to an “other” sinking fund for our stockpiling of cash. You might ask, is that the right thing to do?
Dustin and I have talked about it extensively and feel this is the right decision for our family. We want to be fully prepared for whatever may come our way in these next couple of months. Until now, every time we get paid, we would pay all our monthly bills and minimum amounts on all debts, and then throw all remaining money at our smallest debt in our debt snowball. We follow a zero-based budgeting system. The only difference is our “zero” is $1000 since we keep our Baby Step #1 emergency fund of $1000 in our main checking account.
So now we will continue to pay all our monthly bills which include rent, car insurance, cell phone, internet, Hulu, etc. and then pay minimums on all our debts which consist of our student loans, personal loans and credit cards. Then instead of throwing all remaining cash at our debt, we will throw it in our savings account in our “other” sinking fund.
What are some reasons why you might stop your debt snowball and stockpile cash? See the list I have compiled below.
You are having a baby!
This is probably one of the number one reasons why anyone does and should pause their debt snowball. While we were not following the debt snowball when we were pregnant with Mark, we were saving like crazy in preparation for having a baby. We came up with a number to save based on a few factors. First, we took into consideration our insurance deductible and out of pocket max. We then scoured the internet for what others said the cost of a new baby would be (i.e. diapers, wipes, food, etc.). We also knew that I would be returning to work after Mark was born, and we wanted to have a couple months of daycare expenses saved. We added all of that up and came up with our goal number. I want to say it was something like $8,000. We met our goal; however, we blew through our cash.
We found out when Mark was 6-weeks old that he had to have surgery when he was 6 months old. By that time, it was a new insurance year, so we had to meet a new deductible and out-of-pocket max. Thankfully (but not really) in that year (2017), he had to have three surgeries total. Because they were all in the same insurance year, we only had to meet one out-of-pocket max. I remember logging into our insurance company at the time, Blue Cross Blue Shield, and seeing that our insurance covered over $160,000 in medical expenses and we just had to come up with something around $4000 for our out-of-pocket max. Thank you, Jesus, for good insurance and all his surgeries happening in the same year.
You lose your job.
This should be a no-brainer! If you are in baby step #2, you have your $1000 emergency fund in place, per baby step #1, and you lose your job, you need to stop throwing all of your extra cash at your debt snowball and simply pay the minimums. This will allow you to adjust your budget which now has one less paycheck coming in and save additional funds. If you lose your job, and your budget still looks a little rough because you have lost income, this will be a good time to cut back on everything that is a non-essential. Now, what is considered non-essential? In my mind, it is Netflix, Hulu, cable, internet, eating out, Sirius XM, any subscription boxes, adjust your sinking funds (if you can make that work), gym membership, and anything else like that.
While you probably have experience in a field (i.e. teaching, a trade, finance, administrative work, etc.), now is not the time to be selective. Pick up any sort of side business you can find to help aid in the loss of income until you find your next career path. This might mean driving for Uber or Door Dash, delivering pizzas, working retail…. You get the picture. There are options. Are they ideal? Not necessarily. Will your ego be hit a little? Maybe. But, at the end of the day, you need to be able to provide for yourself and/or your family. Just know that this is temporary. Keep putting in the effort in finding a job and cutting back, and you will get through this.
A Major Health Emergency
While I do not have personal experience with this, I have seen enough threads in the Dave Ramsey FB Community that outlines different medical scenarios where people are pausing their debt snowball. From what I have seen, it typically comes after a car accident where there are major injuries or a medical appointment with a big unknown. If you are about to have a procedure done, and you know what your out-of-pocket max is, pause the snowball and start stockpiling the cash to prepare you for that. If you have an appointment with a doctor where there is a big unknown of any possible impending condition, pause the debt snowball and start stockpiling cash. You want to have time to focus on being present and dealing with your appointments, and not worrying about whether you will have the money. And, if something comes from this and you have medical bills, don’t ignore them and let them pile up and potentially go to collections. Communicate with the hospital, doctor, anesthesiologist, etc. Work out an agreement to keep you on track before it gets too overwhelming to even try to deal with.
A Death in the Family
This is another one that I have been blessed to not have to deal with personally; however, I know it happens and most often at a horrible time. If you have a death in the family, especially if it is a close family member, pause your debt snowball immediately. Go as far as cutting out expenses, as outlined in bullet #2 above, and stockpile that cash to assist you in travelling to be with family, assisting with funeral costs, etc. Give yourself grace during this time and be present for you and your family.
Major Car or House Repairs
Are you a one car household where you rely on your vehicle to not only get you from point A to point B, but your kids as well? Then your car is your family’s lifeblood. If a transmission needs to be replaced, you should pause your debt snowball and come up with the funds to replace it. When it comes to needing new tires, oil changes and other recurring maintenance, you should consider setting up a sinking fund for your car. Check out a post I wrote on sinking funds. In this post, I outline what my car sinking fund covers.
Same with house repairs? Did your house sustain damage in a tough storm? Do you have a sinkhole? (Yes, I’ve seen that happen.) Pause your debt snowball, pay minimums only, cut back and figure out a way to cover those expense. Now, has your fence been deteriorating over time but you haven’t had the time, money, effort (insert word here), to replace it? NOT an emergency. You should consider creating a sinking fund for your house repairs. That way, when the time comes to make a repair, you have funds to cover the cost.
Now that I’ve covered what constitutes pausing your debt snowball, let’s talk about some things that are not considered an emergency.
- A VACATION. Yes, I said it. A vacation is not an emergency. In fact, if you truly are gazelle intense (i.e. you think, eat, sleep, Dave Ramsey and getting out of debt), you won’t even consider going on a vacation while in baby step 2 while snowballing your debt. However, if you are going to take a vacation, it is not an emergency. I would recommend setting up a sinking fund for your vacation. If you want to save $4,000 for a vacation next year, and you get paid 24 times in one year, then you should save $167 every time you get paid for one year so that you will end with $4,000.
- NEW FURNITURE. Again, not an emergency. Do you want a new couch because yours has lost some of its comfort? Is your back patio bare, and you want to spruce it up? Is your 55” TV not cutting it for you anymore? Not an emergency. I repeat, NOT AN EMERGENCY.
- ANY PURCHASE NOT IN YOUR BUDGET OR ASSIGNED A SINKING FUND. Does your wardrobe need elevation? Maybe to cover a big promotion? Not an emergency. Come up with a budget, start a sinking fund, and buy a couple pieces here and there.
Now that you’ve read through my do’s and don’ts of what is considered an emergency where you should/could pause your debt snowball, tell me what you think I missed in both categories.