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 down 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 first time I heard of the Debt Snowball Method was after reading Total Money Makeover by Dave Ramsey. It’s Baby Step 2 (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 to get you started and at the end is a list of debt snowball calculators.
How the debt snowball method works
#1. Make a List of Your Debts
In order 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
#2. Put All Extra Money Towards One Debt
Instead of trying to spin your head and pay off all of your debt at once, 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 or you sell some stuff. You will want to put that money to good use by adding it to a particular debt. Preferably the smallest debt you have at the moment. 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.
#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.
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 debt or are you debt free?
Debt Snowball Calculators
Dave Ramsey Debt Snowball Calculator (free trial)
I’ve also made my own debt snowball worksheet!
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