The Snowball Effect: Simple, Effective Debt Reduction

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debt snowball, debt reduction, debt payoff, credit card debt, credit card fees, debt consolidation The following article is by MPFJ staff writer, Miss T, from Prairie Eco-Thrifter. If you want to learn how to live your dream life in a sustainable, healthy, and money savvy way, check out her site here.

Are you snowed under with debt? 

If you are, you are among the tens of thousands of people struggling to keep their heads above water. A growing number of people are struggling with a home mortgage, a couple of loans, as well as numerous credit cards (the other day, I heard of one guy who has more than thirty cards!) 

Every month, they have to perform a juggling act to find the payments and not fall behind. When you use the snowball effect, you target one debt at a time, freeing up extra funds to get it paid off faster. It’s really quite simple, but you’ll need to be disciplined and committed to sticking to it.

Let’s look at a fictional case study:

Bob and Margaret are a couple in their mid thirties with three kids at school. Bob has a well-paying job as a Sales Manager; Margaret works part-time in a fashion boutique so she can be home for the children after school. They have a mortgage, a car loan for the new SUV they bought last year, a personal loan for the holiday they took to Disneyland with the kids, three store cards, and six credit cards. 

They use their credit cards for most things they buy and just make the minimum repayments each month. Usually, this means that they have to use one card to make the payment of another – a process commonly called robbing Peter to pay Paul.

They sound like a fairly typical family, don’t they? Like so many others, they were managing OK, until an unexpected emergency happened. Margaret got sick, so they had extra medical bills, and she couldn’t work for six weeks. The credit card and loan payments fell behind, and all cards became maxed out; they started receiving letters of demand. This was when Bob and Margaret realized that they needed help; they did the best thing they could have done – they consulted a debt consolidation specialist (which can often be costly in and of themselves!). Ignoring your worsening debt situation is the worst thing you can do.

This was when they heard about the snowball strategy, among other things

This method of debt reduction involves paying just the minimum repayment on all debts while throwing all the extra cash you can at one debt to get it paid off quickly. When you get one out of the way, you put the money you were paying off the first debt, onto the next one to get it paid off quickly too. Make sense?

If you have multiple credit cards and/or store cards, and are struggling to maintain their payments and get the balances down, the snowball method is for you.

It’s simple, but it isn’t going to be easy, especially at first. You’re going to have to have commitment, discipline and persistence. It will only work effectively if you are committed to becoming debt-free, and have the discipline to pay as much as you can every month off the debt you are working on. Can you do that, do you think? Of course you can!

Here’s what to do to get started: 

  • Make a list of every debt you have.
    •  Against each debt, list the amount owing, the minimum repayment and the interest rate. 
  • Now, arrange them with the smallest account balance at the top of the list and the biggest at the bottom.
  • Next, add up all your minimum repayments. Check your household budget.

What! You don’t have a budget written down?

OK, that’s the first job. You have to know where your income goes and how much excess cash you can find to throw at these debts. (I said you needed commitment and discipline, didn’t I?)

The biggest thing your budget should tell you is that you spend less than you earn. Maybe you are like so many others and you have been spending more than you earn – this is a recipe for financial disaster, as you’ve probably already found out.

To make this method work for you, you need to have sufficient income to cover all your minimum repayments and still have some money left over. If you don’t, get some professional financial help right away before it gets any worse.

OK, now you’re ready to get started on getting rid of one credit card completely. Sound good? Great!

Decide which one it will be – usually the one with the smallest balance because it will be the quickest one to get rid of and you’ll feel fantastic when you have your first financial ‘win’.

So, you keep making all your minimum repayments, including the one you are targeting first to snowball – this is really important as you don’t want to fall behind with anything.

Check your budget to see how much extra you have each month, because you are going to throw all the spare cash you can lay your hands on, at your smallest balance. Be creative; look for new ways to find an extra few dollars every month – eat at home more; take your lunch to work; hold a yard sale. The more you can throw at it, the sooner it will be gone! So will some of your stress!

This first account will soon be paid in full. This next step is vital – cut the credit card up! This is the only way to prevent getting back where you were before.

Now, choose the next lowest balance to attack.

Like before, you keep making all those minimum repayments; at the same time, put the amount you were paying off the first account, onto your new target along with its minimum repayment. Keep finding ways to free up some extra cash and throw this at your new target too. When you pay this one off, cut up that card too and then throw all the money you had been paying off it onto the next one on your list.

See how the cash has snowballed so you can throw so much more at the one debt as you get more paid off?

You must keep the discipline up, or all will be lost. Don’t be tempted to use the money you were paying off an account for any other purpose than throwing at the next debt. Give yourself a little reward each month for staying on track and reducing your balances. Soon all those nasty cards will be paid off!

So, are you in debt? If so, what have you tried to do in reducing it?

****Photo courtesy of sparkia


  1. I love the snowball method! It is such a great way to pay down debt fast. I recommend it to anybody who will listen:)
    My recent post My Escape from the “Toxic Employee from HELL”

    • I agree. Just like when you start making a snowball you don' think it is getting any bigger but then all of the sudden it does and your snowball is huge. It really is effective.
      My recent post A Healthy Environment Should Be Our #1 Priority

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