Watch this for an example of how the debt snowball works: Since you are taking the amount you used to pay off the first debt and putting it all + the minimum payment that you were already paying to the second together, you are making more of an impact towards that debt.Įach time you pay off a debt, the snowball gets larger and more powerful – which is great, because it just increases the speed that each debt gets paid off. What you will find is that each time you pay off a debt, the “snowball” gets larger. Continue this process until all debts are paid off.Take the amount you were paying towards the first debt and put towards the next smallest debt.Celebrate like crazy when you get that first debt paid off.Put every extra dollar you can find towards paying off that smallest debt.Pay the minimum payment on all of the debts – except the smallest one.Re-order these from smallest to largest debts (use Excel or Google Docs to make this simpler.).Next to each one write down the total balance owed.Create a list of all of your debts: credit cards, car loans, student loans, mortgages, etc….The Debt Snowball stepsĭepending on who you hear discussing this method it may be more or less steps, but this how I define the steps: And as you keep paying each off, you have more and more going to the next one and the momentum builds like a snowball rolling down a hill – hence the name. You just start with the smallest one and get it paid off ASAP.Īs soon as you do, you now have more to put towards the next smallest debt. Well, simply put it can be defined as a simple approach where you pay off the smallest debts first. So, if you are new to this method of paying down your debt you might have thought “what is a debt snowball anyway”? Since we are not robots that always do exactly what we know we should, I recommend this method for most people trying to pay off debt. The strength of using this method is that it focuses on the behavioral side of personal finance rather than the mathematical. If you are wanting to pay off debt on your own, this works!Īnd while Dave Ramsey popularized the Debt Snowball method, he didn’t actually create it. When Linda and I were paying off $46k of debt, we actually didn’t use a debt snowball spreadsheet or worksheet, but looking back I think it really could have helped us. Creating a debt snowball is my preferred method of getting out of debt.
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