Paying off Debt Using the Debt Snowball Method - More Dollar$$ at Home (2024)

Debt. That four letter word that most of us know all about. The majority of people carry debt, because most homeowners have at least a mortgage.

But many people have a LOT of debt. And, having an extreme amount of debt can often make you feel helpless and extremely stressed out.

But there is hope for digging out of that financial hole. As daunting as it may seem, you can get rid of those piles of credit card bills and monthly payments.

You can take control of your debt and overcome your financial woes using a simple strategy called the snowball method. This method was developed by Dave Ramsey, yes, that financial guru.

Paying off Debt Using the Snowball Method

The snowball method employs a rolling (like a snowball) strategy of paying off your debts. Remember when you were a kid and you made a snowman?

At first, you start with a tiny snowball but as you keep rolling that snowball in the snow, the snowball gets bigger and bigger.

The snowball method of paying down debt involves paying off the lowest debt first, then moving on to the next, and the next, and so on.

While paying off your lowest debt, you make only the minimum payments on other debts – no more, no less.

The snowball method allows you to gain momentum in paying off your debts. Instead of struggling to pay off debts all at once (which is impossible, right?), you concentrate on ONE debt at a time.

How to get Ready to Use the Snowball Method

First, make a list of all your debts. Grab all of your credit card statements, plus paper and pen.

List every single one of your debts, including car loans, monthly mortgage payments etc.

Put the biggest balances at the top and the smallest balances at the bottom. Have debts with similar balances owing?

Look at number of payments and interest rates and determine which can be paid off easier and quicker.

You should be able to find this information on your latest credit card statement.

The lowest payoff of all your debts should be on the bottom of your list.

This is the debt you’ll conquer first.

But before you start with the snowball method, there’s one thing you really should do first. That is work on saving up at least $1,000 in a savings account or in cash.

This helps ensure you have at least some financial security in case of emergency such as job loss, illness or a death in the family.

And you know what? Having a bit of money set aside for possible emergencies eases your mind a bit.

It’s important to have that piece of mind. If an emergency hits, you will be so relieved you still have access to some money.

Once you have your emergency fund, you can start focusing on paying off your lowest debt.

How to Use the Snowball Method to Pay Off Your Debts

Ready for the snowball method? Here’s how it works:

*Add up the minimum payments on EACH debt. Commit to paying all of these on a monthly basis.

You can set up automatic payments, or create a calendar to ensure they all get paid on time.

*Look at your monthly income and determine how much, in addition to the minimum payment, you can devote to your lowest debt.

Commit to paying that amount, plus the minimum payment, each month until it is paid off.Have extra money one month?

Maybe you received a couple of birthday checks or some overtime pay from your job? Add that to your payment.

Once you get that lowest debt paid off, I want you to do two things. First, put that credit card away, take it out of your wallet (if you haven’t already). STOP using it.

Second, celebrate…just a little bit. Maybe that means you and your spouse go for a Saturday morning coffee date.

(Hint: Eat breakfast at home first!) Then go for a special coffee together at your favorite coffee shop. Enjoy yourselves, finish off with a nice walk.

It’s important to do something nice for yourself to celebrate these milestones, just try and do it as cheaply as possible.

*Once the lowest credit card is paid off, you will turn your focus to the second lowest debt on the list. OK you are already making the minimum monthly payment on this debt.

So now, take the minimum payment you were paying on the first debt, and apply it to this new debt.

This is in addition to the minimum payment you were already making. Add in any additional funds you can, whenever you can.

Continue this process as you pay off every single credit card debt; move on to the next lowest debt, apply the previous payment toward it and continue paying until it’s paid off.

As you pay off one credit card, you have more money every single month to apply to the next balance.

Think about it – as you pay off the cards, every monthly payment you make becomes a LOT larger.

For example, say you started out with debts from five different credit cards. Once you pay off two cards and are working on the next one, you are still making the same “payments” you did when you were paying for five cards.

You will start to be rather amazed at how much debt you are paying off, every single month!Eventually, you will reach the top of your list and will have paid off all your debts in full.

General Tips for Getting out of Debt

Though debt can often seem too much to handle, the snowball method offers a clear path out. Focus on one debt at a time – you’ll be able to free up more funds and slowly but surely take steps toward a debt-free life.

Generally speaking, you should be paying off every credit card bill in total every month. Can’t quite get there?

Then always make the minimum payment, PLUS any interest you are charged. This way you won’t be paying interest on the interest, if you get my point.

Look at all of your monthly expenses. You may find that you are literally wasting money by paying for things you aren’t using.

Can you drop the level of your monthly internet package? Are you paying bank fees for services you don’t use?

Every single time you get a credit card paid off, put that card away. Better yet, you should do that before you even start the snowball method.

Get yourself down to one card or maybe two. And research which credit card to keep – does one offer you points for things you actually can use?

Maybe groceriesor fuel? Gift certificates that you can use to buy clothing?

Some people find that they can earn a lot of points by putting literally all of their monthly groceries and fuel onto one card.

Works great if you have the funds to pay that bill off completely every single month.

You will be well ahead of the game if you can find that one credit card that actually pays you (in points, travel, fuel etc) to use their card.

Credit cards are great, if YOU KNOW HOW TO PLAY THAT GAME

(So, figure out how to play the game and then do it)

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Find out more about Credit Card and Debt here.