The Debt Snowball Method Works!

After being in debt for 20 years, I can safely say that the Debt Snowball Method is the best way to go when attacking your debt.  I have paid off over $100,000 in 15 months, and I only have a few more months until I am debt free for good!

I learned about the debt snowball method from Dave Ramsey in his leading book “The Total Money Makeover”.  Before Dave Ramsey came along, conventional wisdom had it that you should pay off high interest debts first to save money on interest.  Ramsey, however, believes that personal finance is 20% head knowledge and 80% behavior.    We all know the math, but we have an incredibly difficult time actually executing our plans.

The main thrust of the snowball method is that you need “quick wins” to build up confidence and keep going.  By paying smaller balances first (regardless of interest rate), you start seeing results faster and gain momentum and motivation.  The principle is to stop everything except minimum payments and focus on one debt at a time. Otherwise, nothing gets accomplished because all your effort is diluted.

Here is how I paid off a ton of debt:

Step 1.  List Your Debts

I listed all my debts in order with the smallest balance first. Don’t be concerned with interest rates unless two debts have similar payoffs, then list the higher interest rate debt first.  You are more likely to stay with the plan when you pay the little debts off and see quick results.  I first listed all debts on a sheet of paper including my car payments and my mortgages.  Oh man, this was a humbling exercise.  You can say what you like about what a “good debt” or “bad debt” is such as student loans or mortgage, but remember this:  We owe that money to a bank.

I use the Debt Payoff Pro App to list and keep track of my debts. There are others, of course, but I like this one since it is simple and straightforward.

Step 2.  Attack With Reckless Abandon

Pay as much as possible to the first debt on your list. Throw as much as you can scrounge up or earn toward that first debt to get it DONE WITH FAST. At the same time, you make only minimum payments to all of your other creditors. Don’t spread payments all over the place. If you want to send in extra money, send it ALL to your first debt. Once the first credit card (or loan or whatever) is paid off, you’ll feel really confident!

Step 3.  RepeatYou now have more money to send to the next debt since you no longer owe anything on the first one you targeted. Over time, you will direct a larger amount of money toward each remaining debt.

This whole process is extremely motivating  because you make progress quickly instead of feeling like you’ll never get anywhere. And when you see progress, you keep going at it.

I had 13 debts listed a year ago.  To see them all on paper made me want to cry.  I now have 4, and two of them are mortgages.  I am almost there, and it feels incredible!  Because of the snowball method, the payments are really large now so the balances are shrinking fast.  You can do this, too!

The snowball method works.  It is behavior modification at its finest. 

To all my readers, I invite you to get in touch with me via email, twitter, or Facebook to chat about the details of my journey of getting out of debt.  I absolutely adore helping others with this stuff.  I will be more than happy to help you in any way I can!  Let me know….

Speak Your Mind