One of the reasons we are so looking forward to moving is that we plan on renting a much smaller less expensive house so that we can throw more money at some debt we accumulated over the past four years (mostly a loan for private college tuition and a credit card we used to pay for more tuition). Are you also trying to pay off debt but you’re not getting anywhere? Consider using the debt snowball system to get rid of your debt for good. That’s what we’ve been doing and its working!
The Debt Snowball System
The first time I heard of the Debt Snowball Method was after reading Total Money Makeover by Dave Ramsey (on my Top 10 Frugal Living Books to read). It’s Baby Step 2 of the 7 steps recommended by Dave Ramsey (Baby Step 1 is saving $1000 for your emergency fund). Basically the strategy is that you pay down your smallest debt first while paying the minimum due on your other debt. Then when that debt is gone you roll that payment into the next debt on your list. This way you stay motivated as you see balances go down and debts get paid off!
Some people prefer to start with the highest interest rate debt instead (which some call the Snow Avalanche Method) and I think it just depends on what you find motivating. Some people are more into actual number crunching and some people are more into getting a psychological boost from seeing debts go away. A lot of getting out of debt is often behavior related.
Here’s a quick run down of the debt snowball system to get you started and at the end is a list of debt snowball calculators.
How the debt snowball method works – here are the basic steps
#1. Make a List of Your Debts
To start paying down your debt via the snowball system, you need to list your debt from smallest to largest. Keep in mind that you’re not worried about any amount of interest at this point. You’ll want to focus on the actual amounts of the debt. I have a sheet in my Budget Binder that I use for this. Here’s my post on how to make a budget binder. You’ll start by focusing all your attention on the first debt on your list. Which should be the smallest one. Throw everything at this debt! Once you have that paid off, take the payment from debt #1 and add it to the payment of debt #2 until that is paid off and so on. Keep going until you are debt free!
#2. Put All Extra Money Towards One Debt
You’ll want to put all of your extra money towards one debt. For example: let’s say you have $20 at the end of each week’s pay period or you get a bonus. You will want to put that money to good use by adding it to the debt your focused on paying off first. Preferably the smallest debt you have at the moment. Many people that are really serious and committed to paying off their debt get a second or even third job. A side hustle will help you pay off that debt faster! Here are some side hustle ideas for you to consider.
#3. All Money Goes Somewhere
You can’t have a snowball system if you are not telling your money where to go. This is where the zero-based cash budget comes in. Sit down each week/month and plan out where each $1 is going to go. Start with a simple budget if a zero-based one is too much for you right now.
#4. Don’t Get Any New Debt
You’re trying to pay off your debt. So no adding any new debt!
The victory in paying off debt this way is you get excited to see one debt gone, one after another, even if they are small debts. Paying down debt isn’t easy, but it’s something that needs to be done. If you feel defeated in the debt paying process, try to celebrate the small victories in this process to keep you motivated!
Do you have plan for paying down your debt or are you already debt free?
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Debt Repayment Resources
Debt Snowball Calculators
I’ve also made my own debt snowball worksheet!
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