What is the Debt Snowball, and Does it Really Work?

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When you want to build a snowman, you start by forming a ball and then rolling it round and round in the snow until it gets bigger and bigger. Before you know it, you have a big ball of snow, enough to build the snowman of your dreams.

Well guess what – the method you used as a kid to build the best snowman can also be used for paying off your debt.

With the snowball method, your money will gain traction and grow, and grow, and grow until it pays down all of your debt and leaves you in a better financial situation than you ever thought possible.

When should you start the debt snowball?

You need to take a look at your overall financial picture in order to determine if the time is right for you to start the debt snowball. You should be up to date on all of your bill payments, and you should have at least £1000 set aside as your emergency fund. Over time you will add to this fund, but £1000 should really be your minimum before you start the debt snowball.

The debt snowball at a glance

Here are the four simple steps to starting the debt snowball:

  1. Make a list of your debts, arranging them from smallest to largest, without considering the interest rates.
  2. Start by making the minimum payments on each of these debts, apart from the smallest one.
  3. Pay as much as you can over and above the minimum payment, towards your smallest debt. Then, once it is paid in full, move that payment onto the second smallest debt. Increase the payment if you’re able to.
  4. Repeat these steps, until all of your debts are paid.

You can download my free debt snowball worksheet to list your debts and keep track of your payments (it’s available in £, $ and € formats).

Here’s a practical example of the debt snowball technique

Let’s say you currently have 4 debts.

£400 store credit card – £50 a month

£2200 credit card debt – £90 a month

£6800 personal loan – £145 a month

£8900 car loan – £165 a month

If you apply the debt snowball method, you’ll make these minimum payments on all debts except for the store credit card. If you have £400 left each month (due to your dedication to living frugally, and maybe even taking a side hustle), you’ll add it to your smallest debt.

That means that instead of spreading your money around to all of your debts, you will be able to pay off this smallest debt within just one month!

Now, you can take this £450 (the extra £400 you have, plus the £50 from the minimum payment on the store credit card) and really attack your credit card debt! You add this £450 to the £90 credit card minimum payment and pay £540 per month. That’s right – within 4 months, it is paid off in full. Did you think you could do this so quickly?

Here is where we start to tackle the biggest debts, and things really start to get good. Add that £540 per month to the £145 you have earmarked for the minimum payment on your personal loan. By hammering your personal loan debt with £695 per month, it will be gone in less than 10 months’ time.

Now you just have the biggest debt left, and you have a tried and tested method to eradicate it. You have £860 with which to attack your car loan. That means that in 11 months, it will be history. You paid off nearly £20K of debt within just 26 months.

In just over 2 years, you can be debt free, and now you have an extra £860 a month to put into your savings accounts, your emergency fund, your retirement savings, and yes –holidays, shopping sprees, and fun!

Download the free debt snowball worksheet to get started.

How to stay motivated when using the debt snowball

One of the best ways to motivate yourself while you are engaged in the debt snowball technique is to reward yourself along the way. Of course, you’ll be dreaming about all of the financial freedom that is just on the horizon, but in the meantime, don’t be afraid to reward yourself for staying on track.

Consider slowing your repayment plan by one month in order to free up some money for incentives along the way. Every month or two, set aside £30-£50 for a nice meal out or some luxury toiletries. An austerity mind set can lead to getting frustrated and giving up completely. A nice treat now and then will keep you on track, and keep you paying down that debt.

Happy repaying!

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