How to Pay Off Your Debt (The Debt Snowball)

UPDATE: This is the same debt snowball technique my family and I used to pay off over $90,000 of consumer debt in less than two years!

The Debt Snowball is a popular debt reduction technique recommended by many financial gurus in the industry. I first learned about it by reading the book The Total Money Makeover by author Dave Ramsey. If you are serious about taking control of your debt, instead of letting it control you, here’s a step-by-step guide on how to pay it all off.

Update: Be sure to check out my new FREE debt snowball spreadsheet calculator to help you keep track of your progress as you work your way through the debt snowball process!

Gather your account statements for all your outstanding DEBT and be sure that you include your significant other’s DEBT (if applicable). It will be hard to proceed any further without knowing where you actually stand. Get a copy of your Free Annual Credit Report and verify that the credit bureaus don’t show you responsible for any other accounts you may have forgotten about.

List out your different loans, credit cards, medical bills, and other debts down the side of a piece of scrap paper, or even better a computer spreadsheet. Make sure you include the remaining balance and interest rate of each debt next to its name. The sight of all your debts together isn’t easy on the eyes but it can be a great motivator to push you in to paying it down.

You may have a couple of small debts under a $1000 from medical bills, department stores, or other places. Focus all of your extra income on these small accounts first. Pay the minimums on the rest of your loans and get these guys out of the way so you can focus on the big ones. Once you’ve knocked off your last “small” account take that payment and start attacking the big debts. Mathematically, it is best to pay down your remaining debts by order of the highest interest rates. This decision is yours. I preferred to attack my debts smallest to largest regardless of the rate based on the advice of Ramsey. He states that the emotional boost you get from knocking out a few quick loans will help keep you motivated throughout the entire process. When you knock out a debt apply that payment to the next debt up your list and keep repeating this process until you are done. Financial planners refer to this technique as the Debt Snowball because as you pay off a debt, that payment then rolls into the payment on the next debt in your plan continuing to grow like a snow ball would! Remember focus is the key here.
Good Luck and Happy Snowballing!

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Dave Ramsey’s 7 Financial Baby Steps
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Too Much Debt?  Download our free Trees Full of Money Debt Snowball Calculator and see how quickly you can pay off your debt.

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