The Debt Snowball Method

How to know what debt to pay off first
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What is The Debt Snowball Method for paying off debt?

How Does It Work?

The debt snowball method for paying off debt works best when you stop using credit altogether. A critical element to this debt management strategy is making sure you pay more than the minimum payments each month. This will help you to really make a dent in those debts. Don’t worry though, we have a lot of ideas that can help you on our debt free tips blog. Consider this method as one of the most well known credit management strategies.

Where Do We Start?

Wondering what debt to pay off first?  The first thing we want to do is make sure we cover our four walls, Food, Utilities, Shelter and Transportation.  Once you have that out of the way, write down all of your credit card balances and minimum payments. Order them from the lowest balance to highest balance. Make sure you can cover all of your debts. This shouldn’t be too hard. Credit cards are usually set up with low monthly payments. This ensures a longer payback time for borrowers, and more interest for the lender. To help, just look at the Schumer Box the next time you receive a credit card invoice.  ​The lowest balance is what debt to pay off first.  Then move to the next lowest balance. The balance based debt snowball method for paying off debt may cost more or even take longer than the interest based debt snowball method for paying off debt.  However, The debt snowball method for paying off debt is meant to get rid of individual debts quickly.  This will help you state of mind as initially you start checking off paid balances and removing the credit card from your life entirely.


What Debt to Pay off First

By adding up the minimum payments, you will now know how much you have to pay each month to cover part of the interest, and what debt to pay off first.  With the debt snowball method for paying off debt you will pay the smallest balance first.   This is only the beginning! You may be asking, why are you giving us debt counseling services for free? The answer is, I care about your well-being. If making a plan helps you to feel less stressed, and live healthier, then I consider it my duty!​

Debt Pay off Plan that Works

Now let’s say you have $1200 in debt to Credit Card A. With a minimum of 2%, you will pay around $24.  Credit Card B has a balance of $3000 and is $58 per month. Let’s say you have a Student Loan that is $6000 and the minimum will be $120.  Notice I don’t care at all about what the interest rate is? That is because it really doesn’t matter, we are going to pay this debt down faster than we should accumulate costly interest.

          Debt Name     Balance    Minimum

Credit Card A    $1200     $24

Credit Card B    $3000     $58

 Student Loan    $6000     $120

In this example, our minimum payment is going to be $202. Therefore, you will need to pay the credit card companies and Student Loan Lenders at least $202/month.  ​

How Does the Debt Snowball Work?

The debt snowball method for paying off debt works this way. You will pay the minimum on all cards until one is paid off.  When you pay off Card A, take the minimum payment and add it to Credit Card B, for a total payment of $82.  When you pay off Credit Card B, put the entire $202 onto Credit Card C. If paying just minimums, this process would normally take 100 months or 8.333 years.  See, it pays to know which debt to pay first!

If you are going to pay the minimums only, you are in for a long road. Credit cards are actually set up for you to carry a balance. Therefore, if you have any extra money each month, add it to the lowest balance that you have until the lowest debt is paid off. Then just keep going until you are completely debt free!!! .  

Making more money and saving more is a different topic. There are lots of ways to do that. For more information on this, head over to my debt free tips blog.

For now, while using the snowball debt payoff method remember to just keep paying and rolling over the minimums to the next card with the lowest balance card. This method is tried and true, and the only one we recommend, as we know it works from personal experience. The industries top Financial Coaches support it and use it as a piece of debt free advice.  





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