I thought we’d better sneak this post in before it gets too warm – a snowball is always easier to visualize in the winter.
Editor’s Note: What a great line, eh? Unfortunately, I wrote this post months ago, but since it was such a good line, I decide to keep it in this post even though it is now the hottest time of the year.
What is the Debt Snowball?
Take a small ball of snow and roll it around your yard on a day when the snow is a little softer. The sticky snow picks up more and more snow, and so it becomes bigger and bigger as it is rolled around the yard.
The debt snowball is a method that allows you to gain more and more momentum as you pay off your debt.
How Do You Set Up A Debt Snowball?
I have a free downloadable Excel debt snowball spreadsheet.
Basically, you need to get a list of all your debts and the total amount owning.
List them in order from the smallest outstanding balance to the largest. Pay minimums on everything except the account with the smallest balance. Once you pay off the smallest balance, take what you were paying on the smallest account and now apply that to the next smallest balance.
For example, if you were paying $125 per month on the smallest balance and $57 on the second smallest, when you pay off the smallest, take that $125 plus the $57 so you can now pay $182 per month on the next debt. Keep applying payments to debts until you have everything paid off
Is there A Better Method Than the Debt Snowball?
This, my friends, is the million dollar question. Some say yes and some say no. Mathematically, it would make more sense to pay off the loan with the highest interest rate first. However, the debt snowball wants to capitalize on passion and focus, not math sense. Ultimately, I think passion can make up for any mathematical disadvantage. In the end, there is no way to conclusively find out which its a stronger factor – math or focus.
7 Tips For Successfully Paying Off Debt Using A Debt Snowball
- Intensity is your best friend. Use it to your advantage.
- It is important for both the husband and wife to be on board with the plan. This is especially true when you have marriage and money problems.
- Set up a worksheet and have your projected debt payoff date in front of you. Aiming for a goal will always produce better results.
- Make a commitment to use any unexpected money towards debt repayment. Here’s how to set up a budget for unexpected income.
- Sometimes you will need to get a part time job just to get the initial traction.
- Setting up the debt repayment plan and getting motivated will take more effort to start than maintain. Leave yourself time to get the snowball started rolling.
- Your income will be your greatest tool through this process, so be sure you are keeping a budget.
What are your thoughts about the debt snowball? What method do you use for getting out of credit card debts and other debts?