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Paying off Debt – The Snowball Method Explained

If you’ve ever heard of Dave Ramsey, chances are that you’ve also heard of his snowball method for repaying debt. Hearing about something though and understanding it are two different things though and while you may understand the basics, the actual logistics of the debt snowball may confuse you. When you’re paying off debt, the snowball method is one of the simplest ways to actually pay each debt off in a smart way while keeping your family from going without or struggling.

Paying Off Debt The Snowball Method Explained

Paying off Debt – The Snowball Method Explained

The basic premise of the debt snowball method is that you will start with your smallest debt and roll your payments into your larger ones as you pay each one off. Doing this allows you to work from smallest to largest while building the amount of money you’re paying on the larger debts that you have. The process may take you a couple of years to complete (average time is around 18 months or so), but once it’s done, you will be just about debt free!

Can you imagine what it would be like to live without debt? Your money would really be yours to do with as you please, instead of feeding the wallets of those rich finance companies. You’ll look forward to enjoying guilt-free vacations – paid for with cash – and buying your next car with cash, instead of credit.

Picture the life you deserve in your mind and feel the feelings of relief and joy. Then make a plan to move toward this life and put your plan into action.

To start, you will need a list of every debt that you owe except for your home. Make sure that you also include payment information, the amount you owe, the minimum payment amount and any account numbers you might need for them. Your home should be done last since it is typically the biggest debt that anyone will have. Order your list with the smallest debt first and the largest debt last.

When you start making payments on your debts, you will start with the smallest one. Make the minimum payment on it until you have it paid off.

Great! More money in your budget, right? Not so fast!

Instead of adding that money back into your budget, you’re going to create your snowball and now apply the minimum payment for the debt you just paid off to the next debt you’re working on. Keep in mind that you still need to budget for that debts minimum payment.

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For instance:

  • Debt “A” had a minimum payment of $50.00 per month.
  • “Debt B” has a minimum payment of $25.00 per month.

You will be paying $75.00 total onto Debt “B” until it is paid off.

As you move up the list of your debts, you will be paying not only each minimum payment, but you will apply all of the minimum payments from before.

  • Debt “A” had a minimum payment of $50.00 per month.
  • Debt “B” has a minimum payment of $25.00 per month.
  • Debt “C” has a minimum payment of $100.00 per month

You will be paying a minimum payment of $175.00 per month on debt “c” until it is paid off.

Combining the current minimum payment with the previous ones is your debt snowball. As you “roll” up your list of debts, your snowball (aka your payments) will get larger and larger making it easier to pay off that big debt sitting on top of the hill.

The snowball effect is an effective debt repayment strategy. Utilizing this method of debt repayment will help you keep the momentum as you repay your debts so that you can get the job done and enjoy a life free from the constraints of debt.

Love this article? Check out how I do the Envelope Method without cash!

Download the FREE Snowball Debt Worksheet!

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  • And once you are debt free remember to avoid the overspending that got you into debt in the first place.

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