The Debt Snowball Method: The Best Way to Slash Debt in 2019

Everyone loves a great debt payoff success story, but what about a story about where it all started?

Hi, I’m Ivy. A thirty something Millennial with entirely too much debt!

I’m in the red and finally ready to tackle it by using the debt snowball method.

The first thing I did when deciding to get my sh*t together so-to-speak was to take a real look at exactly what I owe.

I’m facing this number head-on and preparing to make changes in my behavior.

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Although accruing debt has been easier than figuring out how to get rid of it, I’m determined to live financially free no matter how long it takes.

I’m in my early 30’s and can truly say I’ve never been financially savvy nor fully committed to focusing on my finances in a totally responsible way.

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Most of my debt stems from taking out student loans to fund my Bachelor of Arts degree and completing several Master’s Degree classes.

The remaining debt is from various credit cards, a personal loan and a small car loan which I hope to pay off in January 2019.

Thank God for small victories!

Growing up in a home where financial freedom was never at the top of discussions, it became easy for me to repeat poor financial choices. However, it’s past time for me to get serious about financial freedom.

What is a Debt Snowball?

The debt snowball method means paying off debts from the smallest to the largest (regardless of the interest rates attached to them) in order to achieve initial quick victories.

Essentially, payments roll into one another as debts are paid off and you end up creating a snowball effect. You’ll make larger payments on subsequent debts as smaller ones are eliminated.

How Does the Debt Snowball Work?

In the graph below you’ll see the following:

Once Debt 1 is paid off, the $50 payment is rolled into Debt 2
Once Debt 2 is paid off, the $300 payment is rolled into Debt 3
Total Payments Made Each Month Are the Same Overall ($500)
$7500 worth of debt is eliminated in 15 Months

In this example, $7500 of debt has been paid off in 15 months using the Debt Snowball Method

I initially learned about this concept from Dave Ramsey in his book entitled The Total Money Makeover.

Within his bestselling book he writes about using the debt snowball method to eliminate all debts.

Ramsey suggests paying the minimum amounts due on all debts except the lowest debt owed. So for the lowest debt owed, throw as much additional money towards it as possible for a quicker payoff.

To keep things simple in this example, I didn’t throw any additional money towards debt 1.

Once the lowest debt is eliminated, take the minimum payment previously paid on the lowest debt and add it to the next one.

Then, rinse and repeat these steps until you’ve eliminated 100% of your debt!

Why Does the Debt Snowball Method Work?

The idea is that psychologically, people thrive on those initial quick wins to positively reinforce that what we’re doing is right and actually works.

Check out this article from the Harvard Business Review if you need more of a push to start your own debt snowball and why it’s the debt payoff strategy that you’re more likely to stick with.

There’s an entire 7 step process to becoming financially free in The Total Money Makeover. However, for this blog post’s sake, we’re only focusing on Baby Step 2 (The Debt Snowball).

What Does the Debt Snowball Look Like in Real Life?

I’ve compiled a real-life scenario below as an example of how I plan to slash debt. I didn’t add monthly expenses such as housing, food and gas etc.

As you can see, the lowest debt is listed first and beside it the minimum payment due for the month.

The first debt to be eliminated is a car loan. Although only $262 on this loan is owed, the regular monthly payments (before this current month of January 2019) were $297.

I left this amount in the minimum payment column. Notice that once the final car payment is made, that minimum payment is then rolled into the Credit Card #1 payment for an overall larger payment.

Use the same strategy to pay off Credit Card #2.

Check out the math below:

$297 (previous car payment)+
$35 (previous credit card #1 payment)+
31.00 (credit card #2 regular payment)=
$363 (New Payment for Credit Card #2)

The minimum payments will continue to roll up to the next bills until the scenario below shows 100% debt free.

Believe me, even as I write this, it feels…almost impossible. Even a couple of lifetimes away.

However, I’ve read about the success stories of others and look forward to sharing my own journey and success story in the future.

If you’d like to start your own debt snowball, you can find this editable and/or printable debt snowball form here.

Pros and Cons of the Debt Snowball Method

Pros:

Quick wins early on will motivate users to continue with the process
There’s a clear blueprint on what to do and how to do it. No Surprises.
Others have had success using the debt snowball to pay down or completely eliminate debt.

Cons:

Debts with higher interest rates may not be eliminated early. We’ll pay more in the long run.
Using the debt snowball still requires discipline and patience. Everyone will not follow through with it.

Logic and Mathematics vs. the Debt Snowball

Mathematically, it makes sense to pay off debt by starting with the debt carrying the highest interest rates.

But let’s be honest, what’s always the most logical thing to do isn’t always the most fulfilling or easiest.

As an emotional being (speaking for myself here) I completely understand and have felt the impact of achieving smaller goals that have mentally pushed me to continue to move forward in other areas in my life after achieving quick wins.

Think about trying to lose weight and starting a new diet or supplement. Are you more likely continue with a particular process if you’re promised results after 6 weeks or 6 days?

I’ll take 6 days…thanks!

Whether you’re brand new to the debt snowball concept or if you’ve achieved any of your financial goals through this method, I’d love the hear from you!

Share your thoughts with the community below!

Until Next Time,

Ivy