The Debt Snowball Method

The Debt Snowball Plan:

Create a budget – This will allow you to determine your available, disposable income. You will need disposable income to tackle your debts, so it is essential to create disposable income.

Enter the debts into a document and order them by “Balance Owing” (not interest rate or payment size). Start with the smallest balance first, and on top of the page, to the largest balance, last, and at the bottom of the list. – We have created a downloadable Debt Snowball Plan file that does all this for you.

Pay only minimum, monthly, payments on all debts, except for the debt with the smallest balance. This debt with the smallest balance should be paid off first. See Point # 5 below.

Consult your budget and determine how much disposable income you have available.

Increase the minimum, monthly payment of the smallest debt by the extra amount you determined in Point # 4, above.

Keep making the payments determined in Point #4 above, on the debt with the smallest balance, until the debt is paid off.

Once the smallest debt is paid off, add the payment for the smallest debt to the minimum payment of the 2nd smallest debt. Once it is paid off, tackle the 3rd smallest debt in the same way. Keep on paying the debts off sequentially, until all the debts have been paid off in full.

Once all the debts have been paid and you are debt free, invest the savings ASAP before it can be spent.

Revise your budget continuously and re-affirm your new habits to stay debt free.

Although this is my recommended method to build and execute a debt snowball plan, I leave it up to your discretion to change it to suit your needs. It is important to note, however, that the debt snowball file I created only supports the above method.

The Debt Snowball File:

This Excel file creates your debt snowball plan for you. All you have to do is enter your debts into the file; the file will automatically arrange your debts for you according to the debt snowball philosophy. The more accurate and complete the data you enter the better your results will be. You don’t need any Excel skills to use the file and you should find it easy to use.

I created this file to help our clients, their families and their friends, who struggle with debt to become debt free. You may use the file for FREE. All I ask is that you tell your friends/family where you got it from. Why? Because I get mortgage referrals from it when people realize that I care about them and their finances.

More about the file itself. The file has five pages/sheets:

  • Page 1: “Budget”
    This page contains a full budget.
  • Page 2: “Debt Snowball Instructions”
    You will find the instructions to complete the Debt Snowball Plan data sheet and explanations to interpret the resulting plan in this sheet.
  • Page 3: “Debt Snowball Plan”
    Read the instructions, then enter your debts into Table 1 and provide the information required for the rest of the sheet. Table 2, on the sheet, is your Debt Snowball Plan. It orders your debts and provides you with the complete plan.
  • Page 4: “Disclaimers”
    Read the page and understand the disclaimers and cautions.
  • Page 5: “Q&A”
    This sheet might answer some of your questions.

Download the file here and feel free to use it. Let us know how you progress on your debt free journey. We are cheering for your future!

Benefits of the Debt Snowball plan:

If done well and diligently the debt snowball plan has many benefits. Here are some of them:

  • 1. Paying off the debts is a process and not a quick fix. Quick fixes typically only deal with the symptoms of problems. Since the debt snowball plan is a process, you can learn many financial and life lessons that last a lifetime during the process.
  • 2. Progress is celebrated early. As debts are being paid off, the plan celebrates victories early, accelerates the paying off process because the payment increases with every debt that is paid off. This provides motivation along the way, unlike other plans that depend on brutal willpower that most often fail.
  • 3. Facilitates a new lifestyle. While the debts are being paid off we have time to adjust our lifestyle and learn to live within our means. The newly learned lifestyle and spending habits shift our vision from a life where debt is normal to a new positive way of life, filled with a vision for the future.
  • 4. A large lump sum at the end. Once the debts have been paid off, all the money that we used to pay towards debt is now available for us to use for whatever we want to. If invested wisely, this can generate a significant net worth over time.

This was part of our “Dealing with Debt”, Three-Part series.
Be sure to read Part One -Why We Make Debt; Part Two– How to pay off debt and become debt free and Part Three – How to stay out of debt and remain debt free.

Feel free to give us feedback below. We would love to hear from you about your victories and struggles in the debt-free process.

For Disclaimers please see “Disclaimers” and other pages in the Debt Snowball Plan file.

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