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Review: The Debt-Snowball Method - It Works!

Updated on October 12, 2009

Pay Off Your Debt AND Feel Good About It!

If you are one of thousands of Americans neck-deep in debt, I highly recommend the Debt-Snowball method to help get yourself out. Heavily promoted by Dave Ramsey, the principle is to "stop everything except minimum payments and focus on one thing at a time". Here is an explanation of the method taken from Wiki:

  1. List all debts in ascending order from smallest balance to largest. This is the method's most distinctive feature, in that the order is determined by amount owed, not the rate of interest charged. However, if two debts are very close in amount owed, then the debt with the higher interest rate would be moved above in the list.
  2. Commit to pay the minimum payment on every debt.
  3. Determine how much extra can be applied towards the smallest debt.
  4. Pay the minimum payment plus the extra amount towards that smallest debt until it is paid off.
  5. Then, add the old minimum payment from the first debt to the extra amount, and apply the new sum to the second smallest debt.
  6. Repeat until all debts are paid in full.

Let's do an example. Let's say you have 5 credit cards with balances totaling $20,000. Each month, your goal is to put $1,000 of your budget toward paying off these cards. Following the steps above, here's how things would go:

Step 1: List credit cards in order of balances owed, from smallest to largest.

Card 1 - $500

Card 2 - $1,000

Card 3 - $5,000

Card 4 - $6,500

Card 5 - $7,000

TOTAL DEBT = $20,000

Step 2: List the minimum payments required for each debt and commit to making them.

Card 1: $30

Card 2: $80

Card 3: $150

Card 4: $200

Card 5: $300


Step 3: Determine how much extra can be applied towards the smallest debt.

Since your Budget = $1,000, you have $240 extra that you can put toward Card 1. Your payments should look like this:

Card 1: $270 ($30 minimum plus $240 left over from budget)

Card 2: $80

Card 3: $150

Card 4: $200

Card 5: $300


Step 4: Repeat Step 3 until Card 1 is paid off.

Step 5: Now that Card 1 has been paid off, recalculate the extra amount from your budget and apply it to the second debt. Since you now have less accounts to worry about, your monthly payment for the second debt is larger than the first one, hence the term "snowball".

Card 2: $350

Card 3: $150

Card 4: $200

Card 5: $300


Step 6: Repeat process until all debts are paid off.

So what are others saying about this method? Here's a good read on the Debt-Snowball Vs. Highest Interest First Method. Technically, paying off the highest interest credit card first WOULD pay off your debt faster, but the difference between the methods is minimal (e.g. you would finish in 22 months vs. 24). If you would like to explore both methods and see which one works better for you, there are many downloadable spreadsheets online that you can use to enter your debt information.

For years, I personally managed my credit cards, unknowingly using the interest method. Month after month passed by and it felt like I would never see the light at the end of the tunnel. Finally my husband suggested that we try the Snowball method. We committed to stop using our credit cards and instead stick to the actual cash we have for daily expenses. Within 3 months, two of our credit cards were completely paid off and I felt so great about it! I immediately got more motivated to keep sticking to the payoffs, and even better, we cut back on other expenses so we can add more to the Snowball amount.

The pyschological reward with Debt-Snowball method is definitely worth it. If you are the type of person who likes to see results right away, then this is the way for you. Try your best to freeze all your credit cards so you can concentrate solely on paying them off. Soon you should be feeling great and on your way to being debt-free. =)


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      Fix My Debt 9 years ago

      What a great idea and an easy plan to follow!