One of the best ways to simplify your finances (if you haven’t done so already) is dumping your debt.
Discovering the Debt Snowball
When we got engaged and had the money talk, we discovered a few things about one another.
I had credit credit debt, a car loan, and student loans while he had a no debt, except a semester’s worth of classes he was going to pay off once the grace period was over.
With that eye-opener I made a goal to pay off my credit credits before the wedding. I searched for different ways and discovered the debt snowball method.
It felt free to pay those off!
After we were married we went ahead used the debt snowball money to get rid of the car loan early. We even added some snowflakes to speed things up a little further.
If you haven’t tried it, building a debt snowball can be an incredible way to giving yourself more financial freedom.
What is a Debt Snowball?
Dave Ramsey is most associated with the debt snowball as a part of his system to help people gain financial peace.
Many people have sworn by Ramsey’s methods and have paid off huge amounts of debt in a year or two.
Debt Snowball Basics
Here’s how the debt snowball works:
- List all of your non mortgage debts from small balance to largest
- Pay the minimum payment on every debt
- Figure out how much extra you can put towards paying off your debt
- Use that money to pay down the one with the smallest balance
- When that is paid off, roll over that money into the next debt (old amount +minimum)
- Repeat and keeping rolling over payments until all your debts are gone
Many people have discovered that this method was the easiest to maintain because they only have to focus on one debt at a time. With the intense focus, it made them want to pay off the debt faster.
The debt snowball offers a behaviorally motivating set up as you get wins quicker towards the beginning.
As each debt fall off your list, you two build momentum to tackle the next debt. You’re more concerned with crossing the finishing line rather than the speed in which you get there.
Is it perfect or the most financially sound plan? No, but the results show that the debt snowball is an effective way to get rid your debt.
Automate Your Debt Snowball
You can bypass a lot of mistakes and relapses if you automate your credit card payments with online bill pay.
Most banks and credit unions offer this feature for free. Get the minimum payments set up for the secondary debts and put the maximum you can towards the first debt on your list.
As you knock out each debt, simply update your payments.
Thoughts on Getting Rid of Debt
How many of you use a snowball to get out of debt?