Conquering Debt In 4 Easy Steps: The Debt Snowball

debt snowball

If you search online for strategies to get out of debt you’ll quickly discover that there are a myriad of options to choose from. Just as each person’s journey into debt is different, the best strategy to get out of debt will vary from person to person. To me, what’s more important than the strategy, is that the person starting on the journey out of debt has a strong motivator that makes them want to change and do things differently; as well as a clear understanding of the habits, choices and circumstances that took them into debt in the first place.

Change can be difficult and uncomfortable, both for the person making the change and the people around them. The human brain doesn’t like difficult and uncomfortable; it associates these things with danger and will do whatever it can to avoid them and keep us “comfortable” (i.e.: stuck in the same spot.). My friend Joanne often reminds me that, “there is no comfort in a growth zone, and no growth in a comfort zone, so you’d better get used to discomfort!” Having a strong motivator and also a solid understanding of the obstacles you might encounter along the way (internal and external), dramatically reduces your chances of quitting and increases your chances of success.

If you’re determined to get yourself out of debt; if you have a strong reason to motivate you and a clear understanding of what got you into debt in the first place (so you can avoid making the same mistakes again!) then one strategy that has worked for hundreds of thousands of people (including me), is Dave Ramsey’s debt snowball. It’s a simple strategy and, if you apply it consistently, it will help you become debt-free.

Step 1: Evaluate Your Situation

The first step is to get a clear picture of where you stand. This is often the most intimidating (and nauseating) part of the process because it involves facing your debt mountain and seeing it clearly laid out in black and white.

  • Start by taking a piece of paper (or a computer spreadsheet) and divide the page into four columns: who you owe, the amount you owe, the interest rate and the minimum payment.
  • Now list your debts in order from smallest to largest. Add up the total amount you owe and the total amount that you have to pay in minimum payments each month.
  • Then take a deep breath and make yourself a coffee (or something else that makes you happy). If you’ve got this far, you’re way ahead of most people, so take a few minutes to feel good about having the courage to step-up and take action.

Step 2: Build Your Snowball

Next, you need to determine how much money you’re able to throw against your debt each month (on top of the minimum amounts you’re already paying).

  • Make a list of all the money you have coming in each month and everything that you have going out. Make sure that you’re as accurate as possible when it comes to the outgoings – try to use numbers from your bank statements rather than from your memory because most people drastically underestimate the amount they spend on gas, groceries and entertainment (eating out, movies, random purchases etc.).
  • Once you have your numbers, subtract the amount going out from the amount coming in. Hopefully the answer is a positive number. If it is, decide how much of this you’re willing to commit to debt-busting. I’d suggest about 50% so that you still have a buffer zone so, if you have $200 more coming in than going out, you’d start by committing $100/month to getting out of debt.
  • If you have more going out than coming in, go back to your expenses and figure out how you can either reduce the amount going out, or increase the amount coming in each month.

Step 3: Start Rolling

The way the snowball concept works is that each month you pay the minimum amounts on all your debts. Then you take your “debt busting” dollars and make an additional payment on the smallest debt. You do this until the smallest debt is paid off and then you take everything you were putting against that debt (the minimum payment + the debt-busting $$) and roll that onto the next smallest debt. Once that is paid off, you do the same thing for the next smallest debt and so on until everything is paid off. You can see an example of what this might look like below, assuming that someone had decided to throw $200/month against their debt:

MasterCard $1,500 19.9% $30 $30 + $200 = $230 7 months
Line of Credit $3,000 6.5% $75 $75 + $230 = $305 12 months
Store Card $4,000 29.9% $100 $100 + $305 = $405 9 months
Visa $5,000 17.9% $100 $100 + $405 = $505 8 months
Car Loan $18,000 6.5% $350 $350 + $505 = $855 7 months
Total: $31,500   $655   43 months

Some people argue that it makes more sense to pay off the debts with the highest interest rate first. There’s definitely a mathematical logic to this, however, often the debts with the highest interest are also the debts with the higher balances. Starting with the smallest debts allows you to quickly see results, which motivates you to keep going. Starting with a higher balance means that it will take you longer to pay the debt off and it can be very discouraging to be working hard at paying off a debt, knowing that it might be years, rather than months before it’s paid off. Starting with the smaller debt and snowballing your payments means that by the time you get to the largest debt, you have much more being applied against the principle each month, and it can be knocked off much more quickly than if you’d started with that debt.

Step 4: Celebrate!

Too often, we keep our focus on how far we still have to go and we forget to recognize (and celebrate) how far we’ve come. Celebrate every milestone along your debt busting journey, every extra payment and every debt that gets paid off. Recognizing your success will motivate you to keep going and inspire you to get creative in finding ways to generate extra money so you can get out of debt sooner. It might also inspire those around you to do the same.

No matter what your situation, there is something that you can do today to improve it. That something might not be easy, it might not be something you want to do, but if it will improve your situation and make a positive difference to your life 6 months, 12 months, 3 years down the road, then perhaps it’s worth making the decision to do something differently. We can’t change the past, but we can definitely change the future. Making the decision and taking the action to conquer my own debt mountain has changed my life in ways I couldn’t have envisioned 3 years ago. It hasn’t been easy, but it has most definitely been worth it.

If debt is weighing you down and getting rid of it would make your life better, whatever the first step is for you, I encourage you to take it. You won’t regret it. Contact an advisor for a free no-obligation consultation.

Category: Debt Solutions | Tagged in: , ,

Aug 19, 2015


About Sarah Milton

Sarah Milton is currently stretching her professional wings in Edmonton, Alberta in a role that allows her to combine her talent for writing and speaking with her training in the financial services industry. She is passionate about inspiring people to get excited about their money and empowering them to take control of their financial future. Sarah is the co-author of the book, Take Control of Your Money, she writes a weekly post for and writes twice a month for You can follow her on Twitter @5arahMilton

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