Debt Snowball…What Is It?

 

A debt snowball isn’t a physical thing, rather it’s a term used to describe a debt payoff method that’ll have your debts eliminated usually within 10 years. That’s all your debt including a mortgage. A debt snowball is not an easy course, but if you can stick with it, the rewards are life-changing!

To start a debt snowball, you must examine your debts. List them in order from lowest to highest balance, finishing with your mortgage. Next start looking at ways to cut your monthly spending. Be ruthless in finding money leaks. Daily coffees and lunches, cable extras, any unnecessary spending. This will be tough, but massive debt is much, much worse!

Next, you will need to put together a savings of at least $500 if you are single, and $1,000 if you are married. This will be your emergency savings for unexpected emergencies such as car repairs, vet bills, and the like. The idea is to have a lump sum that you can draw upon instead of slapping more bills on to credit cards. You are going to need to completely stop using your credit cards for a debt snowball to work!

Once you have this fund set up, you can start putting the extra cash you were using to build it up towards paying extra on the first item on your debt list. In other words, pay what you were paying previously on your lowest debt, and add the extra you were putting towards your emergency fund.

Once the lowest debt is paid off in full, go to the next lowest debt. Pay what you have always paid on this debt – perhaps the minimum payment – but now add the total of what you were paying on the previous lowest debt.

Keep on moving down the debt list in this manner until all debts are paid off. Now you can start in on the mortgage. Take the total payment you were making on the highest debt (non-mortgage) on your debt list, and add it to your monthly mortgage payment. Make sure your mortgage company applies the extra funds to the principal and doesn’t just use it to pay interest!

Can you imagine not having a mortgage payment? Or credit card payments that seem to drag you down like an anchor? This is quite possible with a debt snowball, and in fact, thousands have gotten completely out of debt using this method and are living debt free with all the stress relief that it brings!