Have you heard of the Debt Snowball Method? It’s one of the most effective ways to pay off all your debts. Here is how it works and how to create your own snowball budget spreadsheet so you can live debt-free!
What is the Debt Snowball Method?
Think of a tiny snowball rolling down a hill. The farther down it rolls, it grows larger and larger. By the time it reaches the bottom of the hill, the tiny ball is now a giant snow boulder. The Debt Snowball Method works this way. You pay your debts from the smallest to the largest one regardless of interest rate. Over time, you’ll be surprised by how quickly you finish paying it all off.
How Does the Debt Snowball Method Work?
Basically, it all boils down to psychology. You pay off your smallest debt. It feels good, right? The idea that you’ll be able to do it for your other debts sounds good, and it will feel good too when you do it.
You feel more motivated to pay off your second smallest debt. You feel good again and the cycle continues. By seeing that you pay off your smaller debts fast, you’re more likely to stick with this method until the end. And before you realize it, you’ll have more and more cash to tackle your remaining debts.
How to Start Doing It?
It’s very simple to start the Debt Snowball Method. First, open your Google sheets or Microsoft Excel software to create a snowball budget spreadsheet. Write down all your non-mortgage debts from smallest to largest. Pay no attention to interest rates, we’ll deal with that and your mortgage after this.
Let’s pretend that this is what you have:
- Medical bill: $500
- Credit card debt: $2,000
- Car loan: $6,500
- Student loan: $12,000
- Total debt: $21,500
Once you’ve finished listing all your debts, make minimum payments on all of them, except the smallest one. After that, pay off the smallest debt – in the example, it’s the medical bill.
Now, this medical bill is the first thing in your list. Unable to pay it? Take up a second job or start a side business. Do you have things that you no longer use? Maybe you can sell some of your shoes collection.
Make sure to track your debt payment progress monthly. It should be your number one priority right now. Give it all you’ve got to check that priority debt off your list.
Say that it takes you a month to pay off that medical bill. Congratulations! So now that you’re freed of your smallest debt, you find that you have extra cash. Use it to pay off the minimum payment of the second debt in your list: the credit card debt.
For this one, do the same thing you’ve done for the first debt to finish paying this one all off. This second debt may be a lot larger, but you have more money to spare monthly now.
As soon as you’ve tackled the second debt, repeat the previous processes to finish off the car loan, and then the student loan. Keep going until you’re finally debt-free. You’ll be surprised by how fast you do it and how much your credit score has improved!
So that’s all about the Debt Snowball Method. Think about the things that you can do after you’ve paid off all your debts. Retirement, buying a home, vacations, and of course some charity to give back to society. Use snowball budget spreadsheet templates you can find online to make it easier for you. Good luck!