Paying off your debt can seem nearly impossible. When you think about how much debt you’ve accumulated over the years and compare it to your income you probably feel helpless and overwhelmed.
But you’re not alone.
According to NerdWallet, the average U.S. household has approximately $6,741 in revolving credit card debt and almost $50,000 in student loans.
As daunting as the stats may be, paying off your debt is possible; and the debt snowball method is a great strategy to help you pay off your debt fast!
How the Debt Snowball Method Works
Picture a snowball rolling down a hill of snow. As it goes further down the hill, it accumulates more snow and get’s bigger.
This debt snowball method works the same way.
The debt snowball method is a strategy used to pay off your debt from the smallest to largest, while building momentum after you pay each one off.
For more information on how it works, visit Dave Ramsey’s website.
How to use the Debt Snowball Method
Before we go any further, download our debt snowball worksheet to follow along!
Step 1: List all of your outstanding debt (excluding your mortgage) from smallest to largest
Use our debt snowball method PDF to list all of your debt balances plus your minimum payments from the smallest to largest debt balance (not the interest rate).
Be sure to get a credit report to ensure that you’re accounting for all of your debt so there’s no surprises.
Benefits of paying off smaller debts first
The debt snowball method is one of the easiest ways to pay off your debt fast!
By focusing on paying off your smallest debt first, it makes the process seem more attainable and it makes you feel good when you finally pay it off.
This also gives you motivation to continue to pay off your debt.
Step 2: Set your budget
The one thing you need to be aware of with the debt snowball method is that you need to delegate extra income toward paying off your smallest debt.
If you’re already living from paycheck to paycheck, consider getting a side hustle, starting a blog, or cutting back on some expenses to save some extra cash.
Once you’ve determined how much you can spare, enter it in our spreadsheet.
Step 3: Start making payments
Pay the minimum balance on all loans plus the extra amount on the smallest loan.
It should look something like this:
In the example above, the total minimum payments for all debts are $685. The total allocation for debt payoff is $800. The extra $115 goes toward the $35 minimum payment for the credit card (smallest debt). Therefore, the total paid for the credit card per month will be $150.
Keep making these extra payments on your smallest debt until it is fully paid off.
Step 4: Pay off your second smallest debt
Congrats! You’ve paid off your first loan in full!
Now, carry over your payment allocation for that debt into the second smallest in addition to the minimum payment.
Here’s an example:
After the first debt is paid off, the total minimum payments for all remaining debts are $650. The total allocation for debt payoff is still $800, only now you have an extra $35 to put toward the second smallest debt.
The extra $150 ($115+$35) goes toward the $50 minimum payment for Student Loan #1. Therefore, the total paid for the loan per month will be $200.
Step 5: Repeat until you’re debt free!
You’ll notice that as you pay off your smaller debt you have more money to allocate to the minimum payments of your larger debts.
With this method, you may be able to pay off your debt in a matter of months!
Don’t forget your FREE Debt Snowball Method Spreadsheet!
Want to save this post for later or share with others? Pin it on Pinterest!