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How and Why the Debt Snowball Method Works

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Remember when you were a little kid, waiting impatiently for the first big snowfall of the season? As soon as the ground turned white, you rushed outside and started building your epic snowman—rolling one giant snowball head or torso at a time.

That’s exactly how the debt snowball method works.

You start by paying off your smallest debts first, then you gain serious momentum along the way. Before you know it, what once seemed impossible turns into a giant accomplishment!

Here’s how it works:

Once you’re on Baby Step 2—that means you have your $1,000 starter emergency fund saved up—list your debts smallest to largest by amount owed. Don't worry about interest rates.

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Pay minimum payments on all of the debts except the smallest then attack that debt with a vengeance. We're talking sell-out, get-this-thing-out-of-my-life-forever energy. Once it’s paid off, take the money you were putting toward that debt, plus any extra money you find, and attack the next debt on the list.

Once it’s gone, take that combined payment and go to the next debt. Knock them out one by one.

Here’s an example:

Let's say you have the following debts:

  • $500 medical bill
  • $2,500 credit card debt
  • $7,000 car loan
  • $10,000 student loan

For this example, let's also say you find an extra $500 each month by taking an extra job, slashing your lifestyle to nothing, and going crazy. That's very doable.

After listing your debts in order from smallest to largest, begin by making the minimum payments on everything except for the medical bill. You’re going to attack this one with all you’ve got. That means you won’t be eating out or hitting up the latest movie—you’ll be throwing every spare dime toward your debt.

Once the medical bill is gone, keep moving forward. Now you’ve freed up extra money to apply to your credit card bill. Once MasterCard is long forgotten, focus on the car loan, and once it’s wiped out, go crazy on Sallie Mae.

Before you know it, this seemingly insurmountable debt of $20,000 will be gone! And you’ll be free!

Here’s why it works:

The point of the debt snowball is behavior modification. In our example, if you start paying on the student loan first because it's the largest debt, you won’t see it leave for a while.

Pretty soon, you’ll lose steam and stop paying extra, but you’ll still have all your debts hanging around.

When you ditch the small debt first, you see progress. That small, nagging debt is out of your life forever—and you begin winning! By the time you’re paying the bigger debts, you have so much more cash freed up from paying off the earlier debts that it creates a snowball effect. You are putting hundreds of dollars a month toward your bills instead of a few bucks here and there.

The point is this: When you see your plan actually working—your snowball actually growing and gaining momentum—you’ll stick to it. And by sticking to it, you’ll eventually succeed in becoming debt-free and staying that way.

If you need accountability and want to learn more, find a Financial Peace University class near you!

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