If you’re in debt more than a mortgage, you need to start rolling a debt snowball. Maybe you don’t know what a debt snow ball is but it is really simple because you know what debt is and what a snowball is.
They are kind of contrary in terms: a snowball gets bigger and bigger as you add to it and a debt gets bigger and bigger as you take. If you are already debt free except for your house, keep reading because you know someone who can benefit from this debt snowball strategy. Go ahead and send a link to them right now.
First you have to have a budget. If you don’t have one or don’t know how to make one try these links:
Sometimes these things are better done in person so look for a Financial Peace University class near you today or sign up for a Life Champion Debt Freedom Mastermind Group. If you’re still set on going at it on your own, here’s a little spreadsheet to help you get started: Simple Budget Tool
With the budget you need to have line items to cover the minimum payments due on all your debts. Better yet, you need to have more than the minimum payments. If you aren’t covering your debts, you need to start taking some drastic measures. Set up a Free Rapid Change Championship and lets make a plan to give you some breathing room.
Now that you have budgeted enough for all your expenses and more than you minimum payments on your debt (it’s even OK if you’re just covering your debt payments–the snowball will still work) You’re ready to start the debt snowball.
Just a reminder, this is not a math, accounting or rocket science thing. In fact, I struggled with the process because I am a math, accounting, and computer programmer type. I wanted to think it all out — and it could work the mathematical way but the thing is, the reason we are in debt and have a problem with money isn’t math it’s behavior. If you’ve tried to get out of debt before and failed, you must try this simple, behavior and rewards oriented approach. It works!
Debt Snowball Steps:
Step one–list out all you debts except for your home. List the lender, minimum payment, and the balance due (if you’re not using a computer or spreadsheet or my little helper app, put them in increasing order of the balance due).
Step two–sort them from smallest debt to largest debt. It should look something like this:
Step three–In this example, the person needs a debt payoff budget item of $729.00 which is the total of the minimum payments. If this is you, and you don’t have $729.00. Here are a couple of suggestions:
- Revise your budget.
- Get rid of that car and the associated car payment. YOU CANNOT AFFORD IT!!!
- Get another side job.
- Sell some of that junk around the house. Sell so much stuff that “the children think they’re next” –Dave Ramsey
- Grab a free chat with me to discuss your options: Book a Life Champion Chat
If you don’t have enough, and none of the suggestions work. You need to continue searching for more suggestions to get out of this bad place you’ve put yourself in. While you’re searching, start paying the minimum payments from the top and when you run out of budget stop paying.
If you do have enough, and hopefully more, use your budget item to pay off your debt and start applying it from the bottom to the top. When you get to the top, pay all that is left on that debt. If the first item gets paid off, woo hoo! The snowball is rolling. If you still have money left in your debt reduction budget, continue with step four:
Step four–work your way down the list, paying all that is left on the next debt down until that budget item is exhausted.
Debt Snowball Rolling, Now What?
Keep repeating these steps with your budget each month and feel the goalmentum build as you pay off each small debt. Notice the snowball pounding against that smallest debt until it disappears.
If you do have that car loan on your list of debts you should consider getting rid of it immediately. Sell it or something. It is stealing from your future. Read the two articles from Dave Ramsey and realize the long term positive consequences of making this change today:
Notice that we’re not concerned about interest rate or anything else. We’re changing behavior and by killing the smallest debt first, you are creating a quick victory. This victory will strengthen your mindset towards the possibility of becoming debt free.
Share your victories and stories below to fuel the change in others reading this post for the first time and remember
It can be done!