How to Payoff Debt Using the Debt Snowball Method

Once you have made the commitment to stop increasing your debt-load, the next step is to setup a plan to payoff your debt.  Specifically, non-mortgage debt.

The method was made popular by Dave Ramsey’s 7 steps for getting out of debt and getting your financial life in order.  The plan is quite simple, takes very little time to setup and most important – you can see results on a regular basis to keep you motivated and on the wagon.

Here’s how the Debt Snowball Plan works:

  1. List all of your non-mortgage debts in order of smallest balance to greatest with the minimum payment on each.  I also list the interest rate on each.  If I have two similar balances, I list the highest interest rate account first as shown in the example below. Note: Ramsey’s plan states you should focus on balances only as debt snowballing is about behavior modification… with 0% cards I have to disagree with him so this is my modification to the plan.
  2. Determine how much you can pay towards your debts each month.  Make the minimums on all of the accounts except for the first account (smallest balance) on the list.  Put any and all extra money towards this account.  Maybe it’s an extra $50 a month. 
  3. Once the first debt account is paid off, take the money (minimum payment + extra) being paid on  account #1 and apply it to what you were paying on account #2.  
  4. Repeat until all accounts are paid off.

Snowball Debt Payment Plan Example

By paying on the smallest balance first, you see progress which helps you stay motivated.  As the amount of money you can apply towards debt increases, balances decrease and suddenly the last account balance doesn’t seem so daunting.

For me, it’s focusing on that first account.  Trying to juggle all of the balances in my head is overwhelming.  By having the goal of paying off the first account, I target any and all found money (snowflakes) onto this account.