The Debt Snowball Method: Tackling The Small Stuff

3 min read

Anthony O'neal
The Debt Snowball Method: Tackling The Small Stuff

The term debt snowball may seem a bit intimidating and like a bad thing - but the debt snowball method is the best way to pay off debt and pay it off quickly. That being said, the debt snowball method requires discipline and consistency, but when you follow it like your religion, you'll be on your way to being debt free in no time.

Let's dive in and break down the debt snowball method so you can take action ASAP and get out of debt!

What is the debt snowball?

The idea of the debt snowball is that you start paying off debt by paying off the smallest amount first, then working your way up to the bigger amounts. Think of it like this, if you have three loans - one at $1,500, one at $15,000, and one at $36,000 - you start paying off the $1,500 loan first because it's the smallest debt, therefore easier to tackle.

Paying off debt by tackling the high interest debt, unfortunately leads to a decrease in motivation and consistency because it takes longer to see results - making you lose your motivation to pay off all your debts. The snowball method can be summed up in four easy steps, making it easy to manage the minimum payment and get out from under outstanding debts.

Four steps of the debt snowball method

Step 1: Make a list of your debts from smallest debt to the largest, regardless of the interest rates. Our only concern with this method is the amount of the debt.

Step 2: Continue to make the minimum monthly payment on the smallest debt and the rest, but also make sure to put in as much extra money as you can in order to pay off that smaller debt faster.

Step 3: Once that one is paid, take that payment amount and add it to the minimum monthly payment of the next smallest debt until the debt is paid.

Step 4: Repeat this routine until you are debt free and your remaining debts are paid off.

The way that this method truly succeeds is because when you start with the smallest, seeing that paid off is incredibly rewarding, gives you a little psychological boost, and you then have more money to put towards your other debts once that smaller one is paid. This is why it's called the snowball method, because once you get the "ball" of paying those debts rolling, it tends to not slow down until it's done eliminating debt!

Staying motivated & consistent is key

Paying off debt is no small feat, it's stressful, consuming, and can drown you - which is why debt of any kind should be avoided at all costs, but when you're trying to get out of previously acquired debt to start fresh the debt snowball method works at the best debt repayment strategy out there. How do you stay motivated and consistent enough to keep making those minimum monthly payments while tacking on extra to the smallest debt?

First off, I have an incredible community that not only gives you access to tools and courses that help you stay motivated, and give you the best advice on personal finance - but it also can be a source of inspiration and motivation to save money and build your future of financial freedom.

Keep a positive mindset

Debt payoff is a mountainous task in it of itself, but keeping a positive mindset and remembering why you're reaching for financial freedom - whether it's being able to provide for your family, set up a college fund for your kids, invest and be able to retire early, or an entire slew of other reasons - remember why you started this journey. You can even have it pinned up in a place you'll see it every day, to keep you grounded and motivated to reach your goals.

While using the debt snowball method helps significantly, this goal should still be treated as any other goal - remind yourself why it's important, celebrate the small wins and if you don't have a positive mindset and an "I can DO this!" attitude, you won't get the results you're hoping for.

Break down money milestones into bite-size goals

In order to make the most of the debt snowball strategy, you don't need to tackle ALL your debts at once, you can break them down into bite-size goals that are easy to track, easy to celebrate, and easy to stay consistent with. They key with this method is consistency and staying on track. Making your minimum payments on all your debts while adding on extra to the smallest one, you'll need to have a steady budget and trackable goals.

Credit card debt and personal loans can be the hardest to tackle because they have the potential to rack up the most money and interest. If you have a credit card for example, that's balance is at $4,000 and it's your smallest balance, use the debt snowball method to throw as much money into onto that balance as you can, but break it down, for example:

  • Pay off $400 of balance
  • Get the balance down to $2,000
  • Get the balance down to $1,000
  • Get the balance down to $500
  • Get the balance down to $0

Just like with any other goal, we set milestones and rewards for ourselves - the same goes for setting such a big goal like debt repayment.

Let's look at an example

I'm going to break it down with you so you can see an example of how to rock the debt snowball strategy. Let's say you have four different loans, a car loan, student loan, credit card, and medical bill - we're going to break how you'll take the smallest debt and get it paid off fast, then apply what you were paying towards that and use it to pay off the next smallest debt.

  1. $15,000 Car loan = $250 payment
  2. $9,000 Student loan = $59 payment
  3. $1,600 Credit card = $65 payment
  4. $800 Medical bill = $50 payment

Start by making the minimum payment on every loan except the medical bill, this is the smallest debt so we'll handle this differently. Each month you're going to make each of the minimum payments but the medical bill you're going to put as much towards that balance as you can - let's say you are able to throw an extra $150 onto that $50 making the total payments per month towards your medical bill $200.

In a whopping four months your medical bill will be paid off and you can now take that $200 you were putting towards your medical towards your credit card. Once your credit card is paid off, you'll tehn be able to add what you were putting towards that balance and the $200 from your medical bill, towards your student loan - next thing you know you've tackled three of your four debts and are that much closer to debt freedom.

Now, at first glance this may seem intimidating, but in reality, you just have to start with one single debt and next thing you know you're paying off your smallest total debt and you can move on to the next one. You'll do these steps until you have all your debt paid off, now keep in mind the more debt you have the more times you'll have to go through the "snowball" process.

Let's recap

Alright, so we've covered why the snowball method is the best and fastest way to crush debt and skyrocket your financial health - it works because when you start with the lower balance it's easier to stay consistent and pay it off faster, which then snowballs into getting the rest of your debt paid off as well. Continue making minimum payments as usual but add a little extra to the smaller debts and soon you'll be rid of multiple debts and starting to save for your future.

Staying motivated to continue this strategy can be a bit a difficult, but you can keep up the consistency by remembering your why - the reason you're setting these goals and striving for financial freedom while also setting goals that can be easily digested and tracked, making it easy to see your progress. In contrast, you don't want to practice the debt avalanche method in which you attack the debt with the highest interest rate first - this is not the best or the fastest path to financial freedom.

By far, the most important takeaway is to really stay focused, put as much into your goal as you possibly can, and if that means lowering expenses in other places or finding a way to add extra income to your monthly budget, as long as you're staying consistent, focusing on your goal, and you'll be debt free before you know it. The best feeling is being able to achieve your goals and set yourself up for success where you may not have thought it was possible before.

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