If you’ve ever built a snowman in winter, you understand the concept of a snowball growing larger as it rolls through snow. It’s especially true for snowballs rolling downhill. They gain momentum and size as they descend. Well, the same concept can be used for paying down your debts.
The debt snowball concept is simple. Start by paying off your smallest debt first, so you gain momentum, then move on to the next smallest and the next. If you’re sick and tired of being in debt, it’s one of the easiest ways to get control of your finances and to pay down your debt without any outside help.
To get started, it’s a good idea to take a look at your total monthly income and all of your bills and create a budget to see exactly where you stand. If it turns out you’re spending more per month than you’re actually bringing in, you may want to look at ways you can reduce your spending and/or how you can bring in more cash (here’s how one woman paid off $8,000 in credit card debt in just nine months).
Once your budget is in place, you’re ready to figure out action plan so you can attack your debt methodically. One way to do that is the debt snowball method. We’ve put together a worksheet that you can download and print.
Below, we’ve broken down exactly how the worksheet works, plus provided you with some tools to help you put your plan in place.
How the Debt Snowball Method Works
- Using our handy spreadsheet, you’ll start out by listing your debts, smallest to largest based on the total amount outstanding.
- Next, you’ll list your monthly minimum payments for each debt.
- Then, based on the numbers from your budget, you’ll add how much extra you can pay each month toward the debt listed first.
- Finally, you’ll calculate how many months it will take you to pay off (you’ll need to include interest, so using a debt payoff calculator like this one can be helpful in figuring out just how long it will take).
Once your first debt is paid off, you can begin to apply your minimum payment for your first debt, along with the extra amount you were paying toward it, to your second debt. Once that debt is paid off, you can then apply your minimum payments for the first and second debt plus the extra to your third debt, and so on. Here’s an example:
As you can see in this example, it will take 11 months to pay off the first credit card if you pay an extra $200 per month over the minimum amount due (this is, of course, without incurring any further debt on this card). You’ll then take that $235 and add it to the $65 minimum payment you’ve been making on the second credit card. That will take an additional year to pay off. Then you’ll move to the next largest debt, and so on.
The debt snowball method is great for people who need the positive reinforcement that quick results can provide. There are some drawbacks, however. Compared to other debt elimination methods, like the debt avalanche, for example, the debt snowball is a little slower and can end up costing you more money in interest payments. But, if it’s incentive you need to help you stick to your money goals, the debt snowball method can put you on the right path.
You can read more here about the debt snowball and debt avalanche methods of paying down debt to decide which method you think is right for your financial needs.
[Editorial Disclosure: PayDownMyDebt.com is a service that provides people with tools to pay down their debts through automatic payments. The purpose of this article, however, is not to encourage users to purchase that service. This article is educational and journalistic in nature and aims to help people learn how to pay down their debt, whether they use our site, another, or go it alone.]