A debt snowball is an incredibly powerful way to pay off debt quickly and easily. They are fairly easy to set up and use, and they are very powerful. They can literally save you thousands in interest over the life of a loan and help you get out of debt years earlier. I have a debt snowball spreadsheet that I’ve used for years to help clients with their finances. It’s not only a helpful tool, but it really gives you CLARITY on where your debt repayment strategy isn’t working.
What IS a Debt Snowball?
A little background on how a debt snowball works. It is a method to pay bills where you line up your credit card bills in a very strategic way. As you pay off one bill, you take the money you would have paid on that bill and use it to make extra payments on the next bill, and so on. It is widely acknowledged to be one of the best ways to quickly pay off large amounts of debt. Dave Ramsey swears by them – he may have even invented them. They are one of the big foundations of his get out of debt programs.
I’ve been using debt snowballs for the last decade to pay off $30,000 worth of debt. Now you’d think after all that time, I’d be completely debt free. But sadly, I’m missing one important element of the debt snowball. To be really successful at it, you have to cut up or close your credit card accounts and stop charging on them altogether. I’ve got mad skills for paying off debt, but not so much for resisting temptation.
It definitely requires a permanent change to your spending behaviors as well as your bill-paying behaviors. I’ve got several posts you might find helpful for controlling your spending.
How to Use a Debt Snowball
So, in a nutshell, here is how you do the debt snowball. Let’s say these are your bills:
Bill A – I owe $2,500 and I pay $25/month at 5% interest
Bill B – I owe $4,000 and I pay $40/month at 8% interest
Bill C – I owe $6,000 and I pay $60/month at 9.5% interest
So, I’m going to pay just the minimum amounts on bills B and C, but I’m going to throw everything but the kitchen sink at Bill A. I will work extra hours, have garage sales, save money on groceries, whatever I can do to bring in extra money.
This helps me get Bill A paid off in record time – let’s say I pay an extra $175/month and pay it off in 12 months. So, then I take the $200 ($25 plus the extra $175) I’ve been paying on Bill A and I apply it to the $40 a month I am paying on Bill B. This gets Bill B paid off super quick and then I go after Bill C. Now I’m using the $200 from Bill A along with the $40 from Bill B to make mega-payments on Bill C. See how powerful this strategy can be?
A debt snowball not only gets the bills paid off in record time, it can save you dramatically on interest charges. I think of interest charges as money going out of my pocket and into the greedy credit card executive’s pockets! That makes me really motivated to pay as LITTLE in interest charges as I possibly can.
Then at the end once you’ve worked your snowball for a year or two, you’ve got a nice pile of extra cash available each month to save, invest, or spend on a nice vacation. It’s such a great feeling.
Debt Snowball Resource
I actually have a whole personal finance coaching package that includes:
- My debt snowball spreadsheet
- My zero-based monthly budget spreadsheet for your other expenses
- An Ebook of my best financial tips based on my years as a popular personal finance blogger
- A 30-minute Zoom call to put it all together and help you craft a complete strategy for your personal finances
I’ve been doing this for about the past five years or so and I’ve helped hundreds of people get their financial situation turned around. I spent nearly 30 years as a Financial Analyst for Wells Fargo, so I know my way around a spreadsheet and I have a lot of experience in gently nudging people onto the path to financial freedom.
Here’s a link to my page where you can learn more about my Debt-Free Coaching to see if it is something that might help you. I keep it very affordable because the last thing you need when you’re in debt is to be spending a bunch of money on getting help. And it should only take an hour or so of your time and plus bit of spreadsheet work each month to keep you on track.
Debt Snowball Tips
There are two basic types of snowball strategies. The traditional snowball method is starting with the lowest balance card. It does give a psychological boost (which is definitely important), but doesn’t affect the interest fees as much. The other method is an avalanche method that hits the highest interest rate first. In many cases, I’ve found the avalanche method to be highly superior to the snowball method. For really large debts or very high interest rates, it can be a savings of several thousand dollars and can get the debt paid off years faster.
So it’s very smart to have a spreadsheet that can model both strategies so you can clearly see which one is going to work best for you. It’s also super smart to find extra money to put towards your debt from cutting back expenses or picking up extra side work. That can speed up your payoff date significantly. My spreadsheet will clearly show all these scenarios plus it shows you how much to pay on each debt every month.
Check out my post on why you NEED a side hustle. Trust me – mine enabled me to retire from Corporate life at the relatively young age of 58. I’m now a full-time freelancer and making a wonderful life for myself!
Here’s another one helpful post where I talk about the evils of minimum payments. Here’s a hint – they are for SUCKERS. They are very carefully designed to keep you in debt for as long as possible. I NEVER ever pay just the minimum due. I’ll give you my secret tip to pay off debt faster and avoid late fees – ever! The Trick to Minimum Payments.
Here’s handy tip that may help you AND your older kids. I have three children, so after I read Dave Ramsey’s book, I was so impressed, I bought two more copies. Then I taped a $20 bill to the back of each one and gave them to my kids. I told them they couldn’t spend the $20 until they had finished the book.
And it worked. Not only did they read the book, they adopted the behaviors and like 15 years later, none of my kids have any significant issues with debt. Even better – NONE of them has ever asked to borrow a dime from us. That’s pretty rare! Give it a try. That $20 plus the cost of the book could save your kids thousands of dollars in the course of their lifetimes.
Dave Ramsey’s The Total Money Makeover
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