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The Debt Snowball Explained

There is not a quick or easy way to financial freedom. The only way that you will be successful in this process is to change the way you view debt, and to change your behavior. Personal responsibility and maturity is required to achieve financial freedostop borrowing money. It is impossible to get out of debt while you are still borrowing

How The Debt Snowball Works

  1. Make a list of all debts in order listing those with the smallest balance first and the largest balance last. Do not focus on the interest rate or the monthly payment, but focus on the balance only.

  • Ignore the fact that it may make mathematical sense to pay off the highest interest rates first. We are doing it in this order so that you will get motivated by paying off debts. It is more likely that you will continue if you experience what it feels like to pay off debts.

  • Include every debt, medical bills, credit cards, car payments, student loans, money owed to friends/family

  • Do not include the mortgage for your house during this step. That will be paid off later.

  1. Make minimum payments on every debt except for the smallest.

  • Example. You have the following debts, and you are able to find an extra $50 in your budget to pay towards debt.

  1. Add every extra dollar that you can squeeze out of your budget to the debt with the smallest balance.

  2. After the first debt is paid off, add the money that you were paying on it to the second debt. Repeat this process until all debts are paid off.

Where do i get extra money to pay on debts?

There are ways to find extra money to pay on debts. I recommend that you do both:

  1. Cut expenses

  • Clearly identify your true needs and wants. Be willing to sacrifice some of your needs for a season.

  • Cut your cable tv, don’t go on vacation, cancel gym memberships if you are not using it, and find other wants to eliminate for a little while so that you may free up income to pay off your debts.

  1. Increase income

  • Look for a higher paying job

  • Take a part time job

  • Start a side hustle

  • Sell unwanted/unneeded things around your house

These changes are effective only if you use the newly found money to pay off debt, not to increase your lifestyle.

The greater your sacrifice, the shorter your sacrifice.

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