If you live in South Texas like me, you know there is very little chance of snow ever happening. As a matter of fact, I’ve been in Houston since 2004, and I’ve only seen it snow twice.
To make matters worse, snow in Houston doesn’t stick to the ground for more than a few hours.
For this reason, you’ll see kids run outside the instant they catch a glimpse of snow. Not too far behind will be their parents with cameras to snap memories of this phenomenon.
When it snows in small quantities like this, you learn to be efficient when creating snowballs.
I’ll admit it: I once searched “Best Way To Make A Snowball” on Google.
I learned that the key is to start with a small snowball, and roll it through the yard.
What happens then is, the snowball collects more snow until you have the perfect sized snowball to do whatever you desire. (You’re welcome Texas citizens.)
This is the same principle behind the method we used to pay off over $61,000 worth of debt in only 16 months. It is, by far, the best way to get out of debt once you have built your starter emergency fund.
What Exactly Is The Debt Snowball Method?
Well I’m glad you asked! The debt snowball method is a type of debt reduction strategy where you work to pay off debts from smallest balance to largest balance regardless of interest rate.
What we found is, the more quick wins you get under your belt, the more excited you become about the journey ahead of you. We want you to get that momentum rolling in the same way you do when building an actual snowball.
We set this up by, first, listing each of our creditors in order from smallest balance to largest.
Once you have your list, you’ll want to throw as much money as you can at the smallest debt while making minimum payments on everything else.
This is where creating an effective budget comes in. You will not know what all you can afford to throw at the smallest debt until you have created a plan for your money for that particular month. (Yes we sit down and create a budget every single month.)
A good budget is the difference between paying off $61,000 in 16 months or paying it off in 26 months. It could save you thousands of dollars in interest over time.
Once you have paid off the smallest debt, you’ll want to apply that amount to the next debt, and continue doing so until all of your debts are gone.
Debt Snowball Example
Let’s say you owe the following amounts:
- $300 credit card balance ($25 minimum payment)
- $900 medical bill ($70 minimum payment)
- $4,000 credit card balance ( $125 minimum payment)
- $9,000 auto loan ($296 minimum payment)
- $20,000 student loan ($150 minimum payment)
Now, as you can see, I’ve arranged these from smallest balance to largest just as I mentioned before.
Let’s say that due to some awesome budgeting, you discover that, by getting your food spending under control, you could apply an additional $275 per month towards debt.
What you would then do is add $275 to the minimum payment on the smallest debt, and pay the minimum payment on everything else.
In this example, applying an additional $275 to that credit card would wipe it out in one month! If you did the math, the debt snowball saved you 11 months of paying on that first credit card!
I can speak from experience when I say paying off a debt that fast is exhilarating.
But we don’t want to get comfortable here.
Now, we turn our attention to the next debt, which is the $900 medical bill with a $70 minimum payment.
Not only will we be applying the $275 initial snowball, we, also, get to add the $25 minimum payment from the first credit card into our snowball. This turns that $70 minimum into a $370 per month payment.
By the time you’re done, you will have gone from paying off this debt in 13 months down to 4.
Now our snowball has become a cool $370 per month. By continuing this process, we’ll build up to throwing $941 per month at the student loan when we reach it.
At the end, you will have paid off $34,200 in only 37 months instead of the 52 months it would have taken with minimum payments. That’s exactly 1 year and 3 months of not having to work just to pay someone else. That’s 15 months of saving $941 which totals $14,115 in YOUR pocket.
There are even ways accelerate the process like having a yard sale or taking on a second job temporarily. Those two things alone could knock several months off of your debt-free journey.
Why are other methods inferior to the debt snowball?
Well, for starters, it works. A recent study found that you are more likely to stick with the process after getting a few quick wins versus trying to attack that large student loan in our example with $425 per month because it has a higher interest rate.
What happens is, over time, people tend to lose motivation using other methods. This happens because, although the numbers are going down, the debts themselves aren’t being totally eliminated.
However, when you get excited after permanently removing a debt, and then follow that up with another shortly afterwards, you’re more likely to stick to the process until you’re debt-free.
Also, the debt snowball focuses on your behavior. You learn how to budget and live on less than you make. At their core, these are 2 behaviors that lead to lasting financial success.
There is only one time that you make an exception during your snowball process -when you owe the IRS. Trust me, you do not want to play around with the IRS. Usually I recommend my clients to get them out of your bank account FOREVER, and then proceed with the rest of the snowball.
In summary, my story would read a lot differently had I not utilized the debt snowball. I couldn’t imagine trying to pay off a car first and sticking to it long enough to see that payment gone forever.
This process works. I’d ask you to trust me, but I’d much rather you see for yourself.
As a thank you for reading, I’m giving you the exact debt snowball form I used to pay off $61,000 in 16 months below. Make good use of it!
Black Sheep Finance Debt Snowball Form
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