You might be thinking, “Oh yeah, yeah, I’ve heard of the debt snowball. It makes sense – you pay off your debts one at a time until they’re gone. I got it.
No, you missed it.
You missed it entirely…
How the Debt Snowball Works
The debt snowball is about more than just paying down your debts one at a time.
There are three major elements to the debt snowball:
- Your initial lump-sum contribution
- Your contribution each month
- Laying out your debts – from smallest to largest
And you know what? Interest rates have pretty much nothing to do with the debt snowball. Do you know why? Because paying off debt is 80% emotional and 20% logical. Paying off debt is more about immediate progress than it is about math. All you nerds out there, just trust me and put your calculators away (and for the love of Pete…please throw away that pocket protector!).
Your Initial Lump-Sum Contribution
This is the first major step of the debt snowball. To get the snowball started, it works best to throw as much money at your debts as possible.
After all, you’re committed to getting out of debt right? And you’re going to do it as fast as possible, right? Then take that $5,000 that you have in savings and throw all but $1,000 at your debts. Then, you’ll use the savings from those debt payments (that you no longer have) and pay off your remaining debts in no-time!
If you don’t have any money, you might want to read this post to get started with a bang! – How to Save Up $1,000 in Just 4 Weeks.
Your Contributions Each Month
The second key to the debt snowball is your monthly payments. The more you can put toward your debts each month, the faster you’re going to be able to pay them all off.
This can be done via two methods:
- Reduce your spending
- Increase your income
The best way to save money each month is to lay out all your expenses. Look at them, ask yourself if they’re necessary, and eliminate them if they’re not.
Or, check out these recent posts to increase your income!
- Best Side Hustles in 2021 (The Year of the Online Side Hustle!)
- How to Find High-Paying Side Hustles – Work Less and Earn More!
- 40+ Side Hustles That Anyone Can Do
How to Lay Out Your Debts
I suggest that people pay off their debts from smallest to largest and ignore the interest rates entirely.
Sure, that 18% credit card debt might freak you out like crazy. But if you tackle the smaller debts with intensity like I know you want to, you’ll get to it sooner than you think – and then bust it out sooner than you ever thought possible!
Set Up Your Own Debt Snowball!
I’ve never seen a free tool out there that helps you lay out your debt snowball, so I figured, “Why not make one for my readers?” Ha, as it turns out, it’s not as easy as I thought it’d be! But, it’s finally complete and it will help you figure out:
- How to set up your debt snowball
- The length of time it will take you to get out of debt at your current pace
- How to speed up your debt snowball by upping your initial contribution or your monthly payment
And, new and improved in 2020, I also created a chart so that you can see your debt payoff plan and mark how well you’re actually doing! To find it, just click on the 2nd tab after you fill our your debt detail. Here’s a sneak peak at what it looks like!
1) Download the Free Debt Snowball Tool
Just click the link below and download the Excel sheet. Then, we’ll start entering your numbers!
Free Debt Snowball Tool – Click Here to Download – you’ll see the download appear as an Excel file in the lower left of your screen after clicking the link.
Sidebar…If the above FREE debt snowball tool doesn’t have enough columns for your debt, we made some that are bigger and better! One can handle up to 16 debts, and the other can handle up to 32 debts!! Just click on the icons below!!
Oh, and if you’re curious about how the debt snowball pays off vs the debt avalanche, you might want to check out this tool where you can see the payoff journey for each method side by side! Check it out!
2) Enter your one-time contribution
How much money could you muster up to get this debt snowball rolling? The more you can throw at your debts for the start, the quicker you’ll be able to get out of debt.
Enter your one-time contribution in cell J4.
3) Enter your monthly contributions
Now, it’s time to enter the amount you think you can throw at your debts – above and beyond your minimum payments. Can you come up with $200 a month? $400 a month? More?
Enter your monthly contribution amount in cell J3.
4) Enter your debts, smallest to largest
Alright peeps. I know it’s painful, but let’s enter those debts of yours into the spreadsheet – from smallest to largest.
Starting at cell D13, enter your smallest debt amount, the minimum payment, and the interest rate. Be sure to rename the debt in the cell block so you keep them all straight.
Continue to move to the right and enter your next debt amount, the minimum payment, and interest rate. List all your debts (up to 16 of them) into the sheet. If you have less than 16 debts, just enter in zero’s for the amounts, payments, and the interest rate.
So what’s the verdict? How long will it take to pay off your debts?
Just scroll down, take a look at the far right column to see how long it will take before all your debts turn to $0.00. In what month will you be debt free?
5) Figure out how to speed it up!!
Did you enter in all of your numbers and discover that it’s going to take you 8 years to pay off your debts??? Well that just flat out sucks! Let’s figure out how to speed up that debt snowball!
What if you…
- Sold tons of stuff and made a couple thousand bucks? What would that do to your snowball? Would it take a year off of your debt payoff?? Maybe more??
- Sold some of that debt? If it’s going to take more than 2 years to pay off that car loan, why not just sell the car??
- Took on a part-time job that paid an extra $1,000 a month? How much would that speed up the snowball?
The faster your tackle your debt snowball, the more likely it is that you’ll get finally get out of debt!
So put on your working boots, make some money, and get rid of that debt!!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.