snowball, snowball method, debt, debt free, debt freedom

Debt Free with the Snowball Method

snowball, snowball method, debt, debt free, debt freedom

This week we are looking at how you can use the Snowball Method for paying down debt.

Debt Free with the Snowball Method

The Snowball Method is a favourite of many people tackling their debt and is a method supported by Dave Ramsay, author of Total Money Makeover.

As with any method of debt repayment, it does assume that you have reduced your outgoings to the minimum and are in a situation where you have created some ‘spare’ income to use for debt repayment.

The thing I like best about the ‘snowball’ method is that it takes away the need to make a decision about which debts to tackle first. Let’s face it, you have just accepted that you are in debt and you feel it is time to tackle it. This alone can leave you feeling overwhelmed and that’s before you start to wonder exactly how you are going to begin reducing your debt.

Lightbulb Moment

If you are reading this post and you have just had your ‘lightbulb’ moment, why not purchase my 6 step debt busting ebook:

What is the Snowball Method?

The snowball method takes a very simple approach to debt repayment. You focus on just one debt at a time, starting with the smallest balance. I’ll give you an example:

Loan Balance Minimum Payment
Bank Loan (1) £750 £10
Credit Card £1250 £35
Bank Loan (2) £2385 £60

What the snowball method requires you to do is pay only the minimum payments on the Credit Card and Bank Loan 2, whilst diverting as much spare cash as you can manage to Bank Loan 1.

Loan Balance Minimum Payment Additional payment
Bank Loan (1) £750 £10 £10 + £50 = £60
Credit Card £1250 £35 £35
Bank Loan (2) £2385 £60 £60

Once you have completely cleared the Bank Loan 1 debt (as this was the smallest balance) the money you were using to pay this off moves on to the next debt on the list in addition to the minimum payment.

Loan Balance Minimum Payment Additional payment
Bank Loan (1) £0 £0 REPAID
Credit Card £1250 £35 £35 + £60 = £95
Bank Loan (2) £2385 £60 £60

You would now be paying £95 per month on debt 2 rather than just the £35 minimum payment. Once debt 2 was repaid, you would then move this money on to debt 3 and so on, until all your debt was repaid.

Important Points to Note with the Snowball Method

You should have:

  1. Already created your SOA
  2. Cut back or cut down to reduce the money ‘needed’ each month
  3. Created a budget and identified the amount of ‘spare’ money you can divert to debt repayments
  4. You MUST ensure that you are making the minimum repayments on all other debts

Is the Snowball Method the Right Method for you?

It is important to remember that different people will prefer different methods. Everybody’s circumstances are unique. You must find the way that works for you and which will keep you the most motivated.

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