How to Pay Off Debt With the Snowball Debt Method

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By lootcorp
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Pay Off Debt With the Snowball Debt Method

Do you have several credit card, car loan, or other debt bills you pay each month? The "snowball debt method" can help you pay off debt quickly and also provides a great psychological boost which will keep you motivated to become debt free!

Difficulty: Easy

Instructions

Things You'll Need:

Recent bills
Pencil and paper
Calculator

Step 1

Gather all of your monthly debt bills and make a list. This list should show the total balance due for each debt and should list them in order from smallest balance to highest. If two debts have close to the same amount due, list the one with the higher interest rate first. Write the minimum monthly payments for each debt down next to the balance.
Step 2

Determine the total amount you can pay towards your debts per month. Next, add up all the minimum payments and subtract this number from the total you can pay. For example, assume you can pay $300 per month towards debt and have four credit cards on your list as follows: $300 balance with $15 minimum, $500 balance with $20 minimum, $600 balance with $25 minimum, and $800 balance with $30 minimum. The total of your minimum payments is $90, which leaves $210 of your monthly debt budget to apply to the snowball. We will call this amount your "snowball budget".
Step 3

Now to get the snowball rolling. You will pay the minimum on each debt, while also paying the snowball budget towards the top debt on the list. To continue the above example, the first credit card will receive a payment of $225 ($15 minimum + $210 snowball budget), while the other three will receive their minimum payments of $20, $25, and $30 respectively. This fully allocates your entire $300 monthly debt budget.
Step 4

Next month, make a new list and repeat. Since the method starts by attacking the smallest balances first, you will soon have one less bill to pay! When the first bill is paid off, the money you were paying to that bill will now be allocated to the next one. In this example, the second month's payments would be $75 for the first card ($15 minimum + $60 snowball budget to bring the balance to $0), $170 to the second card ($20 minimum + remaining snowball budget balance of $150), and the minimum payments of $25 and $30 to cards three and four, respectively.
Step 5

Continue using the method until all your bills are paid off. As you pay off each debt, you will have the satisfaction of writing one less check per month and receiving one less bill in the mail.