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Have you tried the Snowball Method to eliminate debt?

large snowball rolling down a snow covered mountain

As I was reading through the articles from CUinsight.com this morning, an article on the snowball method popped up. If you’ve never heard of the snowball method, read further because this just may be the method for you! The strategy of this method is fairly simple and aimed towards any income level.

To start, you should make a list of all your outstanding debts, what the payoff total is, and what the monthly payment is for each. See below for an example.

Type of Debt

Payoff Total

Monthly Payment

Credit Card

$4,500

$70

Personal Loan

$25,000

$400

Auto Loan

$14,000

$250

Student Loan

$30,000

$300

Next, re-order your table, placing the debts in order of highest to lowest monthly payment.

Type of Debt

Payoff Total

Monthly Payment

Personal Loan

$25,000 $400

Student Loan

$30,000 $300
Auto Loan $14,000

$250

Credit Card $4,500

$70

Here’s how to get started. Every month, pay the minimums on all your debt, except for the lowest. In this example the lowest payment is $70 towards the credit card. For this payment pay any extra you can, ideally pay double or more if you can to pay off this debt as quickly as possible.

Once your lowest debt has been paid off, take whatever payment amount you were making for it and roll it over to the next lowest debt. So for example, if I was paying $140 month to my credit card and I just paid it off, I’m now going to add that to my auto loan payment and start making monthly payments of $390. Continue this method until all your debts are paid off.

Remember, it’s a process and it will take a little bit of time, but by tackling the debt from smallest to largest, you’ll feel empowered to tackle debt after debt as you see the balances diminish until they reach zero.

 

Source: CUinsight Article “How to eliminate debt using the snowball method.”

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