Use the Snowball Method to Pay Off Debt

Snowball Method

I got my first credit card in 2008. I was fresh out of college and decided I needed to start building my credit. It had a $600 limit, and I would get nervous if I had any balance more than $200 on the card. Fast-forward to 2016, and I now have a total of nine credit cards with a cumulative limit of well over $20,000. Almost all of those cards were opened from age 22-25. Luckily, I’ve become much more responsible with my cards, putting only $20 or so on a different one every now and then to keep my cards active and, in turn, boost my credit score. But I still have about $1,200 of debt from the wild, carefree days of my early twenties.

Add to that a car loan and, of course, student loans, and you can see that I’ve got a hefty amount of debt to pay off. Before marriage, I was fine with just paying each bill every month, watching the debt lower at the pace of a glacier melting in the dead of winter, before there was global warming. Then I got married. My husband had debt; then we had debt. Then we bought a house and had more debt.

In recent years, I’ve become intrigued with finance. I’m no number cruncher, but I love learning new ways to improve credit score, new ways to save money, and new ways to pay off debt. It all stemmed from finally realizing that having most of my monthly income going toward bills every month was not the way to live. When I started researching ways to pay off debt, I found a gold mine when I discovered Dave Ramsey’s Snowball Method.

What is the Snowball Method?

The Snowball Method is a way to pay off debt created by Dave Ramsey.  While you continue to make the minimum payments on all of your debts, work on tackling your smallest debt first. Put any extra money toward paying the smallest debt. Once that debt is paid off, move onto the next smallest debt. Pay the minimum payment on that debt plus the amount of money you were paying on the previous debt. Once that debt is paid off, move onto the next, adding what you paid on the previous debt before that. Just as a snowball gets bigger as it rolls, your payments get bigger as you roll on to the next debt to pay off.

Here’s an example:

Credit Debt: $1,200 (minimum payment = $50)
Car Loan: $7,500 (minimum payment = $250)
Student Loan: $14,000 (minimum payment = $150)

Credit Debt: Pay $125 (minimum payment + additional $75)
Car Loan: Pay $250 (minimum payment)
Student Loan: $150 (minimum payment)

Once the credit debt is paid off:

Credit Debt: $0 (card is paid off)
Car Loan: Pay $375 (minimum payment + $125 that was being paid to the credit card)
Student Loan: $150 (minimum payment)

Once the car loan is paid off:

Credit Debt: $0 (card is paid off)
Car Loan: Pay $0 (car is paid off)
Student Loan: $525 (minimum payment + $375 that was being paid to the car loan)

Why the Smallest Debt First?

Why pay the smallest debt first? Because it is the easiest and fastest to pay off. A $1,200 debt is much less scary than a $14,000 debt. Money is obviously a big part of paying of debt, but so is willower and motivation. The easier it seems to hit your goal, the more likely you are to keep going.

Steps to Take

  1. Write out all of your debts and their minimum payments.
  2. Prioritize them by smallest debt to largest.
  3. Look at your budget and see how much you can add to your smallest debt’s minimum payment.
  4. Continue to make the minimum payment on each debt, paying extra on your smallest debt.
  5. Once your smallest debt is paid off, add what you were paying to that debt to your next smallest debt.
  6. Repeat until all debts are paid off.

Snowball Tips

If you have more than one credit card, transfer all of your credit debt to one card. That way, you aren’t paying multiple interest rates. Just be careful; many credit cards charge a percent of each balance transfer. Do your research and find one that has little-to-no cost for transferring balances. If you can, find a card that also has no interest for a given amount of time, so you can also pay that debt with no interest for as long as possible.

To pay off debt faster, put any extra money you get from taxes, bonuses, side hustles, found money, etc. toward that debt whenever you can.

What kind of debt repayment method do you use?

Snowball Method