How to Pay Debt Snowball Style

The debt snowball is a concept popularized by money manager Dave Ramsey. The debt snowball plan has been used by not only the followers of Ramsey, but by many other people who want to pay off their unsecured debts in the most effective way possible. The debt snowball works by paying debts in a specific order: from the smallest to the largest. Since results are seen fairly quickly using this method, many people find it an effective way of eliminating debts.

Instructions

1

Assemble a list of all your debts. Use current credit card or loan statements to get the updated balances.

2

List all of your monthly bills and obligations, including costs such as utilities, food, fuel and housing. Write the figure for the minimum amount due next to each monthly obligation.

3

Write down the figure that reflects your total monthly income, post-taxes. Include all your income sources in this figure.

4

Subtract your total monthly bills from your total monthly income. Any extra money that you have will be added to your debt repayments, the debt snowball.

5

Pay all monthly bills as normal, in the minimum amounts except for the smallest bill. On the smallest bill, apply any extra money that you calculated in step 4.

6

Pay any extra money towards the smallest bill each month until it is paid off.

7

Pay the next-smallest bill as you did with the smallest bill. However, use the money that you were previously paying towards the smallest bill (which is now paid off) and apply that toward the next-smallest bill as well.

8

Continue paying each debt in turn (smallest to largest.) This creates a money "snowball" that gives you increasingly larger amounts to pay down your debt.