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Becoming Debt Free: The Debt Reduction Snowball Payment Plan

Updated on December 11, 2010

Becoming Debt Free

Debt has long been a part of our culture. We have learned to borrow for many things in our lives that we would not be able to afford without debt. Sadly, we sometimes find the debt that served us so well in the past has become a tremendous burden. As a result, many of us now dream of becoming debt free.

Unless we come into a lot of money overnight, many of us see becoming debt free as an impossibility, or a remote likelihood at best. That is where we go wrong, thinking in terms of getting rid of our debt overnight. This is the thinking that leads us to wild goose chases for debt consolidation or debt write off or debt elimination programs that may not have our best interest at heart.

The best way to begin the journey to becoming debt free is to start working on debt reduction. Debt reduction is about working to reduce your debt in a consistent effort over time. It's about working with a payment plan that works for you! One of the most effective and simple debt reduction payment plans available today is the snowball payment plan. And it's FREE!

The Debt Reduction Snowball Payment Plan

For many of us, if our home mortgage were our only debt, we might be okay. After all, it makes perfect sense to borrow money to buy a house. But we all seem to end up using our credit cards now and then. Sometimes now and then turns into carrying a debt balance that is hard to handle when things change. This is where the snowball payment plan is useful.

The snowball payment plan has been around for a while, and you can find various people given credit for the idea. But regardless of who may have created it, you can start using it today to make great strides in your debt reduction efforts.

* Once you have finished reading this article, please see Debt Reduction to Debt Free: How To Find Cash to Payoff Debt with the Snowball Payment Plan for more information.

How The Snowball Payment Plan Works

The basis of the snowball payment plan is to pay as much extra as you can on your smallest payment every month until it’s gone. Once that debt is gone you then add that payment to your monthly payment on the next smallest debt. As you proceed through your various debts, your payment snowballs into a bigger and bigger monthly debt reduction. Let's walk through an example.

Let's say I have debt stacked up on four credit card accounts. Here are the balances and minimum payments that I am making on those four accounts:

  • $10,000 with a minimum payment of $175.00
  • $7,500 with a minimum payment of $135.00
  • $4,000 with a minimum payment of $70.00
  • $2,000 with a minimum payment of $35.00

Now that I have all this debt, and I have decided I am sick of it and want to get it paid off for good, I examine my personal finances and my monthly household budget. In doing so, I figure out I can come up with an extra $35.00 per month to start paying down my debt. It doesn't seem like much does it? If I put that money on the $10,000 debt, it really won't seem like I am becoming debt free any faster. BUT, if I add it to the payment plan on the $2,000 debt, instead of taking 6 years to pay off that $2,000, I will have it paid off in about 32 months! That's right, by paying $70 per month instead of just $35, I eliminate that debt in less than half the time. And I will be saving interest at the same time!

Now that I've gotten that one paid off, I turn my attention to the $4,000 balance. Well, since I have been making the minimum payments on that debt for the last 32 months, I now owe only $2,500 there. So I take the $70.00 payment that I used to payoff the $2,000 debt, and I can add that to the $70.00 payment I have been making on the $4,000 balance. I am becoming debt free more and more every month!

Now that I am paying $140 per month on that $2,500 debt, it won't last long. In fact, it will be paid off in just about 20 months! That is a great feeling, isn't it! That is why the debt reduction snowball payment plan works so well, because it feels so good!

At this point, it's been 52 months since I started with just that extra $35.00, and I already have two of my four balance paid off. Becoming debt free suddenly feels real. Now to tackle that $7,500 balance.

Becoming Debt Free: The Final Stretch

That $7,500 balance has been slowly shrinking while I made only minimum payments for the last 52 months. That's okay, because I've paid off two other balances in the meantime, and that makes me feel terrific and confident that I can do this. Now that balance is only $2,450, and adding the $140 payment freed up from the last balance I paid off means I can make payments of $275 on this balance each month. It will be gone in 10 months!

At this point, that $10,000 balance from the beginning has also been shrinking as I made my minimum payments. It's been 62 months, and I still owe $2,900. But now I have another $275 I can add to each monthly payment, for a total of $450 per month. This balance will be reduced to zero in just 7 months!

Becoming Debt Free: You Can Do It

So, by adding just $35 per month to my payment on just one of four balances, I was able to get all my debt paid off in just 69 months. That's 6 months sooner that with just minimum payments, and considering I was paying off the smaller balances even sooner, there is a good amount of interest I saved doing it this way.

More importantly, this example only considers adding $35 per month. If you can find a way to do it, increasing your additional payment to $50 would result in becoming debt free another 5 months sooner!! That's right, if you start thinking about it, the more you can add to each month's minimum payment, starting on that smallest balance, the sooner your debt will be reduced to zero!

Becoming debt free by using the debt reduction snowball payment plan can work for you. I encourage you to review your personal finances today, and find some extra to add to that minimum payment. Get the snowball payment plan setup up, and then work it hard until you start paying off those balances. You will love the feeling, and it will make you want more! If you are concerned about coming up with some extra money to pay toward your debts right now, read Debt Reduction to Debt Free: How To Find Cash to Payoff Debt with the Snowball Payment Plan.

* While every attempt has been made to ensure accuracy, the numbers presented in this article are provided only for illustrative purposes. Your results will vary depending on balances owed, interest rates, minimum payment calculations and more.


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    • Smaridge01 profile image

      Smaridge01 6 years ago from Florida

      Will and Silver Poet, thanks so much for your kind words. It is always a thrill to have written something that can actually help people. May we all be debt free before too long!

    • profile image

      Will 6 years ago

      Your explanation of the method is stellar and your application to your real life is a perfect example; we enjoyed your story and have added your website as a featured website on the articlelink dot com. Great Job!

    • Silver Poet profile image

      Silver Poet 7 years ago from the computer of a midwestern American writer

      An excellent explanation of a very solid plan.

    • Smaridge01 profile image

      Smaridge01 7 years ago from Florida

      I'm glad you liked it chspublish, thanks for reading and commenting.

    • profile image

      chspublish 7 years ago

      This is very good information for a lot of people and very understandable, so as to allow someone to engage with the information. Thanks for the hub.

    • Smaridge01 profile image

      Smaridge01 7 years ago from Florida

      And we need to get this country out of debt, even if we have to start one person at a time! People we care about are being crushed with debt! Thanks Joni!!

    • Joni Douglas profile image

      Joni Douglas 7 years ago

      I know the debt reduction plan works. Good job!