Get Out of Debt Part 7: Debt Snowball

Getting out of debt can be one of the hardest things we do with our finances. Our journey into debt is quick and can be painless as we are distracted by the enjoyment of the spending. Unfortunately, this means we can quickly fall prey to debt without even thinking about it. As this is number 6 in the series you should have taken the steps to get yourself back on track. The real task is next.

The Snowball

The debt snowball is a phrase which is typically use by Dave Ramsey followers, and it IS effective. It is a set plan of action on how you are going to tackle your debt. The process is fairly straightforward if you are willing to put in the effort.

Starting

To get started, you will need to know which of your debts is the smallest. Now, within your monthly budget take all of the extra money you have left over for debt payoff and apply it to the principal of the smallest debt. You will continue this process until it is fully paid off. Depending on your situation this can be a fast process or it can be a slow one. Remember to keep calm through it all. You likely didn’t get into dent overnight, and it won’t be solved overnight either.

Continuing the process

Once you have been able to get through the first debt, begin applying it to the next smallest debt you have. At this point though you should be able to apply the payment amount you were applying to the debt you just paid off as well. For example, if you had been paying $120 every month to the credit card with an addition $50 you could spare, you will have this to apply to the next debt. If the next debt on your list has a payment of $200, you can apply the $50 AND the $120 you no longer need to apply to the credit card. Thus, you will have $170 extra to apply to the next debt.

Finishing

The more debts you pay off, the more residual payments you will have to apply to the next debt. Eventually, you will be on your last debt. Your extra payments will likely be sizable if you had a lot of debt outstanding at the beginning. Once you are at the end of this, and all your debt is paid off, it is time to increase the savings. This is not a time for you to revert and buy a bunch of things you don’t need. Save more money and begin planning a stronger future.