How to Get Out of Debt with a Debt Snowball

If you're like most Americans, you have debt. And like many, you'd like to get out of debt. Building a debt snowball and starting it rolling is a great way to make progress on your 'get out of debt' goal.

Difficulty: Moderately Easy

Instructions

1. GATHER INFO
   
   Gather information about all debts you'd like to pay off. This includes the balance, the interest rate, and the monthly payment.

2. CHOOSE A METHOD
   
   Choose what order you'd like to use to pay off debts. The two primary methods are to:
   
   1. Pay them off in order of interest rate (highest to lowest). This usually has the mathematical advantage in that you'll pay the least amount of interest.
   2. Pay them off in order of balance size (smallest to largest). This has the psychological advantage of letting you see quick progress, which may make the difference in whether you stick to your plan or not.)

3. BUILD THE SNOWBALL
   
   Begin by paying the minimum payments on all of your debts, except the one that's first on your payoff list. Apply any extra payment amounts you come up with to that debt. (See 'Snowflaking Your Way Out of Debt' in the Related Articles section for more information on coming up with extra payments.)

4. KEEP THE SNOWBALL ROLLING
   
   As soon as you've paid off the first debt, apply the minimum payment amount from that debt to the next debt on your list. Continue to apply any extra amounts you can find to this debt. This is how the snowball picks up steam.
   
   Continue with the debt snowball method until all of your debts have been paid off.

Tips & Warnings

• You may be able to speed up your progress by transferring a credit card balance or reducing the interest rate on your credit cards. There are articles about both in the 'Related Articles' section on this page.

Resources

• The Total Money Makeover: A Proven Plan for Financial Fitness
• The Total Money Makeover Workbook
• The Financial Peace Planner: A Step-by-Step Guide to Restoring Your Family's Financial Health
• More Than Enough: The 10 Keys to Changing Your Financial Destiny

[fooshenip]

on 8/25/2008 Great, thanks!

[luv2blog]

on 8/6/2008 Good tips. I like the analogy. :-)

[klnygaard]

on 8/5/2008 I love this idea--nfortunately, I think for me, I need to get out of the avalanche first.

[01KendraWrites]

on 8/5/2008 Very important information! I used this method a few years ago very successfully.

[0MintDotCom]

on 8/5/2008 Dave Ramsey has rally popularized the debt snowball approach. Good tips!