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How to Use the Debt Snowball System

There seems to be a trend on social media these days. Everyone is talking about being debt free, showing how they paid off their student loans or have paid off all of their credit cards. I am guilty of this too. The thing that gets me is most of these posts, while usually positive in nature, leave me feeling a little negative about myself. Let me explain.

I stumble across a picture of a woman who is showing her student loan debt completely paid off. She goes on to talk about how great she feels and how it has changed her life. I mean, congrats lady, really. However, I have never seen a post like this where the person lays out, step-by-step, exactly what they did to pay this debt off.

Most of the time the post will disclose what method they used. Then, it will direct you to a link to a website where you can buy their latest e-book on their secret debt repayment system. Well, that’s how they did it! They used the money from the sale of their e-book and paid off their debt. Mystery solved. This leaves me feeling defeated because if I am looking for a way to get out of debt, the last thing I want to do is pay $49 for an e-book!

There is nothing wrong with monetizing your knowledge in order to help others. However, call me old-fashioned, if you really want to help someone shouldn’t you just do it? Okay, okay, okay. Let me get off this soap box before I go off sis. My point is, I want to know exactly how to pay of a large debt (like a student loan) and I want my hand to be held the whole time. Well, I am about to break it down for you. Take my hand and let’s talk about the “snowball” method.

The Debt Snowball

Maybe you’ve heard of the Debt Snowball Method? Maybe you haven’t? Dave Ramsey explains this as”…a debt reduction strategy where you pay off debt in order of smallest to largest, gaining momentum as you knock out each balance. When the smallest debt is paid in full, you roll the money you were paying on that debt into the next smallest balance.”

Picture rolling a small snowball down a hill. As it gains momentum, the snowball gets bigger and bigger. Now picture that the snowball is your payment and the hill is your debt. Can you picture it? Okay, now let’s dive into the details. Here is how I used the debt snowball method to pay off my credit card debt.

Getting Started

First, you need to gather all the debt you are wanting to payoff. Next, download my Debt Snowball Tracker sheet and fill in the names and starting balances of each of your debts. You want to write these debts down in order from smallest to largest. On my tracking sheet there is a section where you can write in any notes. I just used that area to write down the total amount I had budgeted to go towards paying off my credit cards every month. My budget was $245 per month. This helped me make sure I was doing my calculations correctly every month.

Next, figure out what your maximum budget is for repaying these loans every month. Make sure that you include minimum payments for all of your debts. As in my example above, I have 7 credit cards. My minimum payment for each credit card is at least $25 per month. That equals to a minimum of $175 ($25 x 7 cards) every month in total. I figured I could wiggle in an additional $70 each month. This is how I arrived at my $245 monthly total. ($175 + $70)

Now, what this means is that my first debt with the smallest balance would receive an initial payment of $95 ($70 +$25 minimum payment). This single payment eliminated that debt completely. Which means the next month, I would take this $95 and apply it to the next debt in line, along with the already established $25 minimum payment. This means I paid $120 to my second debt the following month. Are you following what I’m throwing down? Stop me if I am not making sense.

I continued this process of “snowballing” the previous debts monthly payment and adding it to the next debt payment. By the time I paid off 6 of the 7 credit cards by using this method, my final payment was $230.42. I was able to cover this final payment with the entire $245 monthly budget I had already established. I was able to pay of 7 credit cards in under 6 months.

Types of Debts

The snowball method can be used to pay off any type of debt. Although it works great for credit card debt, it can be applied to virtually any financial situation. It can be used to pay off student loans, mortgages, and car loans. I’ve seen people use the snowball method to pay off other debts too like gym memberships and daycare. The possibilities are endless if you get creative enough. Also, you don’t have to use my tracking sheet for the snowball method to work. You can create your own tracking sheet if you want. Heck, a plain old notebook would work just as well. This is just something I created on my computer that worked for me and helped me stay organized. It is available to download for free in my “Free Stuff” section of my blog if you’d like to have a copy to use.

So Now What?

I’ve had a lot of people ask me “What now?” since I’ve paid off my credit card debt. “Does this mean you are debt free?” No…far from no actually. I currently have a six-figure student loan debt that I am paying off. I am using the snowball method to pay it off as well. Now, in addition to my monthly loan payment of $318, I have added the additional $245 that I had budgeted for my credit cards and applied it to my student loans. I now pay $563 every month towards my student loans. It might seem like a splinter in a snow storm to some. However, I know that chipping away at it will eventually lead to me destroying it.

Now, I have a question for you. Have you decided to use the snowball method? If so, what kind of debt are you using it to pay off? Leave your comments below. I love hearing other peoples success stories and being able to pass on words of encouragement to others. Till next time…