The big damage of ‘small’ debts

Our tax refund total is on track to wipe out three “small” debts. These debts total about $5,000.

The first debt is a Home Depot credit card. That’s the one we’ve been rolling into the Dave Ramsey debt snowball these past few months. The second debt is the remainder of our student loans. These have a low interest rate, but we want to pay them off for reasons that are psychological. And the third debt is a Chase credit card. I put “small” in quotes above because these seemingly minor credit card debts are so deceiving.

Here’s the impact that Chase credit card would have on our life if we continued to just deal with it by making the minimum payments:

The Chase card has a balance of about $2,000. (I’ll use round numbers to make it simple.) The minimum monthly payment on this card is about $40. If we made only the minimum payment, and never put another charge on it, it would take us 11 years to pay off. Eleven years! And over those 11 years, we’d pay an extra $4,000 in interest.

Now, if we almost doubled our minimum monthly payment, it would take three years to pay off. In this scenario, the interest would be about $1,400.

And here’s the scenario without the tax refund in play, and just the budget lockdown and debt snowball working for us. Right now, our Home Depot card would be paid off in about 2 1/2 months because we’d be hurling all extra money at it. After the Home Depot card is knocked out, our next target would be the Chase card. If we debt snowball our former Home Depot card monthly payment, plus our budget lockdown surplus, we could have the Chase card gone in about five months at most. So, five months of payments vs. the worst case scenario of 11 years and an extra $4,000 that should have been in our pockets.


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