Hey there! If you’re looking to pay off your debts as quickly as possible, let me introduce you to a method I absolutely love: The Debt Snowball Method. It’s a simple, effective way to tackle debt, and I’m here to guide you through it step by step.
What is the Debt Snowball Method?
In a nutshell, the Debt Snowball Method involves paying off your debts from the smallest balance to the largest balance. You’ll make minimum payments on all your debts, but you’ll put any extra money toward the debt with the smallest balance first. Here’s how it works:
Let’s Break it Down
Imagine you have the following debts:
- $600 Medical Bills
- $1200 Credit Card Loan
- $10,000 Personal Loan
- $20,000 Student Loan
And here are the minimum payments for each:
- $600 Medical Bills -$30
- $1200 Credit Card Loan -$60
- $10,000 Personal Loan -$80
- $20,000 Student Loan – $120
Step-by-Step Plan
- Start with the Smallest Debt: Put any extra money toward the $600 medical bills. Let’s say you can put an extra $300 each month. You’ll pay off this debt in just 2 months!
- Move to the Next Smallest Debt: Once the medical bills are paid off, take the $330 (the $30 minimum payment plus the extra $300) and add it to the minimum payment of the $1200 credit card loans. Now you’re paying $390 per month on this debt. You’ll pay it off in about 5 months.
- Tackle the $10,000 Personal Loan: Oh my! I know it sounds stressful, $10,000. You might be thinking – how am I going to pay it off, it’s so overwhelming! Next, take the $390 you were paying on the credit card loans and add it to the $80 minimum payment for the personal loan. Now you’re paying $470 per month on the personal loan. This will take about 25 months to pay off.
- Finally, the $20,000 Student Loan: Now, take the $470 from the personal loan payments and add it to the $120 minimum payment for the student loan. You’re now paying $590 per month. This will take around 54 months to pay off.
Timeline Recap
- 1st Debt: 2 months
- 2nd Debt: 5 months (2 months minimum payment + 3 months with $330 extra payment)
- 3rd Debt: 25 months (5 months minimum payment + $470 extra payment)
- 4th Debt: 54 months (25 months minimum payment + $590 extra payment)
In just 54 months (4.5 years), you could be debt-free!
Need Help?
If you find it hard to break down your debt, feel free to drop me a message here.
- List out all your debts:
-Balance, interest rate, minimum payment, and payoff date - How much extra can you contribute each month? (Create your budget so you know.)
We will send you an estimate of when you can finish paying off the debt. It’s free!
And if you’ve never done a budget before, check out my blog: How To Budget For Beginners.
Summary
In summary,
- List your debts from the smallest to the largest balance.
- Make minimum payments on all your debts.
- Throw as much extra money as you can toward the smallest debt until it’s paid off.
- Take the payments you were making on the smallest debt and add them to the next smallest debt.
- Repeat until all debts are paid off and you’re debt-free!
At the same time, I avoid taking on new unnecessary loans because they would make paying off my debt take even longer. When you’re in debt, it can be tough to enjoy luxuries like dining at fancy restaurants whenever you want; you might have to limit such outings to once a week or twice a month. If you want to pay off your debt faster, you need to throw as much money as possible toward it. This doesn’t mean skipping meals, which isn’t healthy. Instead, focus on cutting out some entertainment and unnecessary expenses.
Why the Debt Snowball Method?
I love this method because it helps you see progress quickly, which keeps you motivated. If you’re someone who needs those little wins to stay on track, the Debt Snowball Method is perfect for you.
Comparison to the Debt Avalanche Method
You might have heard of the Debt Avalanche Method, where you pay off debts with the highest interest rate first regardless of the balance. It’s effective but can be discouraging because it takes longer to see progress. You might stay committed to paying off the first and second debts, but then give up quickly afterward. If small victories keep you motivated, stick with the Debt Snowball Method.
Conclusion
Imagine waking up one day, knowing you can go on any vacation you want without worrying about debt. You can treat yourself to nice meals without guilt. This is the freedom we all want. Let’s tackle those debts together and celebrate your financial freedom!
