Select Page

A “debt snowball” is a specific system of paying off debt designed for those who have substantial consumer and student loan debt at different interest rates. The “snowball” in this method refers to the process of rolling a snowball until it gets larger and larger. If you have several debts to pay off, here’s how to utilize the snowball method to your advantage.

Make a Budget

The first step in paying off excess debt is identifying money in your budget that can be allocated to do so. List all your monthly expenses in one column, and all your monthly income sources in another. Any leftover funds should be designated to “snowball” your debt. For example, if you have $1000 in monthly expenses and $1500 in monthly income, you are able to apply $500 toward your debt.

Arrange Your Accounts

As part of your budgetary process, you should have gathered the statements for all your debt accounts and allocated a portion of the budget for the minimum monthly payment on each. Next, arrange these debts from smallest to largest by balance, disregarding interest rate. The idea behind this method is that tackling smaller debts first will empower you to go after larger debts, a strategy devised by personal finance expert Dave Ramsey.

Craft the Snowball

Take your monthly “snowball” amount ($500 in the example above) and put it toward your smallest debt along with the minimum monthly payment. When that smallest debt is paid off, begin putting the minimum monthly payment for the smallest debt, the monthly snowball amount, AND the minimum monthly payment for the second smallest debt toward that debt. Keep doing this until all the debt is paid off.

Try These Secrets to Success

There are a few key strategies to help the debt snowball strategy work for you. First, make sure you’re not amassing new debts while you’re employing the snowball. Automate bills that remain the same every month, such as utility bills, cable, phone plans, and other subscriptions. You can also visit Dave Ramsey’s official website for detailed case studies using the debt snowball method and worksheets that allow you to calculate a plan for paying off your own debt. Those who find they have little money left in their money to pay off excess debt should consider cutting out unnecessary expenses until the snowball gets rolling and the debt is under control. Those who want to accelerate their debt payoff can follow the same steps above, but double the minimum payment for each debt in the initial budget, according to U.S. News and World Report.