The Basics of Debt Snowballing
- List all revolving debts that you plan to include in the snowball method.
- Order all debts from lowest balance to highest balance. In the case that two balances are similar, use the debt with the highest interest rate as the higher priority debt. This order will be the order in which you pay off your debts.
- List the minimum payment on every debt and commit to paying it on time each month.
- Determine how much extra money, apart from the minimum payments, you can devote to paying extra on your debts.
- Pay all debts on time, adding the extra amount from the previous step to the minimum payment on the top priority debt (smallest balance).
- As each debt is paid in full, add the minimum balance to the extra amount in step 4, and pay on the new lowest balance.
- Debt 1: Balance of $50 – Minimum Payment of $10
- Debt 2: Balance of $150 – Minimum Payment of $50
- Debt 3: Balance of $500 – Minimum Payment of $30
- Extra money that can be used to help pay off debt: $40
- Debt 1: Balance of $100 – Minimum Payment of $50 (paid off $50 last month)
- Debt 2: Balance of $470 – Minimum Payment of $30 (paid off $30 last month)
- Extra money that can be used to help pay off debts: $50 (original $40 plus the previous debt’s minimum of $10).
How about you all? Have you ever used a debt-snowball to help motivate you to get rid of your debts? Did it work well for you? Share your experiences by commenting below!
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