Since it’s a new year and more people are resolving to get out of debt, I think it’s about time for a refresher on the debt snowball. Debt snowballs are popularized by Dave Ramsey and a number of other financial gurus as a great way to manage your debt repayment and get out of debt faster. I’m going to walk you through how you’d go about setting up your debt snowball.

Bring Out Your Debt

Before you can optimize your debt repayment, you have to know what you owe whom and at what interest rate. You don’t need any fancy equipment for this, just collect the following information for each debt:

1. Amount still owed:
2. Minimum payment:
3. Interest rate:

For example:

1. Amount still owed: $900
2. Minimum payment: $20/month
3. Interest rate: 8.25%

If you only have one debt you’re trying to pay off, skip down to the section on snowflaking.

Otherwise, line up your debts.

Getting Your Debts in Order

How should you order your debts? This is the part where gurus disagree.

Dave Ramsey is in favor of putting your smallest amount owed first. He believes that this will give more people more of a boost more of the time. Because you’ll get your smallest debt paid off faster, you’ll want to keep going with it.

That approach may be right for some people. I’m more motivated by numbers, so it’s right for me to put them in order of interest. Highest interest at the top and lowest interest at the bottom. Do whichever you think will feel the best for you. Your biggest goal here is to stick with it.

So your debts may look something like this (and these are random numbers just picked for the example):

In order by interest rate

Creating the Snowball

You’ve seen what happens if you roll a snowball down a hill. Little bits of snow stick to it and it gets bigger as it goes. A debt snowball is essentially the same.

To get to this stage, you have to be able to actually make the minimum payments every month. If you can’t, talk to creditors about decreasing minimums or explore other options for earning more. Getting into all that in this article would make it too long.

Ideally, you’ll also be able to find other money to put toward your debt. Again ideally, you’ll have a certain set amount each month. But you don’t have to, you can use the debt snowflaking method and stick on whatever you’ve got available.

The initial snowball

You continue to make minimum payments on all the debts. Then you add your extra debt repayment money to the first debt on the list. You continue to do that until the debt is paid off (you can see why Ramsey feels the smallest debt should go first, since you could probably pay off $500 faster than $1900).

The snowball gains momentum

Once you’ve paid off your first debt, you add all the money that you were paying on it towards the next debt on the list. Suppose that you were able to find an extra $200/month to put toward Debt A, so you’re paying $300/month total on it. That whole $300/month would then add onto the $85/month you were paying toward Debt B.

The super-powered snowball

Then you’d add the $385/month to the Debt C payment and finally the $415/month to the Debt D payment. With $385 in a month, you could pay off Debt C in less than 2 months, probably in 1 with plenty left over for Debt D, given that you’d have been making minimum payments for a while before you got there.

And if you pay off a smaller debt before your highest-interest debt simply by meeting the minimums, then throw that in as well!

Adding Snowflakes to Your Snowball

For some people, it’s hard to say that you’ll have an extra $200 each month to put toward your debt snowball. In that case, paying all your debts at their minimums at first (though once you pay off one, you can add its monthly payment to the next debt) isn’t a bad thing. You’re still set up for the snowball effect once one of your debts is paid off.

But you can also look into “debt snowflaking,” the idea of putting whatever extra money you have in a month toward your snowball.

For example, our extra debt-repayment money comes from Micah’s stipend. So we can depend on a certain amount every month. But now that I’m employed full-time, we can add my blogging money to that. It’s different every month, so it’s more of a snowflake than a committed part of the snowball.

Or if you don’t see ways to earn extra money, look for places you can save. Paid Twice started using the extra money she’d budgeted for the month to pay off her debt. Little things like $5 left over in the grocery budget and $10 in gas can add up.

Even if the number doesn’t look impressive, don’t give up and not snowflake it. Little bits of money add up over time. And as you keep going, you’ll be helped along by your own momentum and eventually by paying off one of the debts (which is what’ll really get the snowball rolling)!

Manage Your Debt

Don’t live in fear of your debt. You can take control, you can even pay it off faster. Whatever you’ve got to work with, whether it’s no extra money, $15/month, or $1000/month, you can start a debt snowball rolling and watch it roll to freedom.

Related Posts

• Your Minimum Payments Influence Your Debt Repayment
• Debt Repayment With a Teacher in the Family
• The Logistics of Snowflaking Extra Payments

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