Debt Snowball Method
Explained A Step By Step Guide!

The debt snowball plan for debt elimination is the preferred method of getting out of debt for personal finance guru Dave Ramsey.

The snowball debt method is a strategy for reducing debt that involves paying off your small balances and then working your way up to paying off larger debts until you eliminate debt altogether.

This plan involves listing your debts, starting with the smallest, and paying the minimum payment plus any extra that you can. After you pay off one, then take the same amount of money to pay off the next in line. Not sure how this really works? Here is an example that will explain how this method really works.

Debt Snowball - A Simple Method Of Getting Out Of Debt

For the purposes of this example, let's assume that a person has the following debts to pay off and a specific amount of additional money that they can devote to paying off their debts with the snowball method.

  • Credit Card #1 - Balance of $250 with a minimum payment each month of $25.
  • Credit Card #2 - Balance of $500 with a minimum monthly payment of $26
  • Car Loan - Balance of $2500 and a monthly payment of $150
  • Personal Loan - Balance of $5000 and a minimum monthly payment of $200
  • An extra $100 that they can use to help pay off debt on the snowball debt plan

By using the snowball plan, for the very first 2 months on the plan, this is how the payments would be made.

  • Credit Card #1 - $25 minimum payment along with the extra $100
  • Credit Card #2 - The minimum monthly payment of $26
  • Car Loan - Minimum monthly payment of $150
  • Personal Loan - Minimum monthly payment of $200
After the first two months the first bill, credit card #1, would be totally paid off with the snowball method. Here are the balances remaining after these first two months.
  • Credit Card #2 - Balance of $448
  • Car Loan - Balance of $2200
  • Personal Loan - Balance of $4600
Now the $125 that was being used to pay off Credit Card #1 can be taken and applied to the minimum payment of $26 on Credit Card #2. This is how the next three months of payments would go.
  • Credit Card #3 - $26 minimum monthly payment along with the extra $125
  • Car Loan - Minimum monthly payment of $150
  • Personal Loan - Minimum monthly payment of $200
When that three months is complete Credit Card #2 will be totally paid off. Then, with the debt snowball method here are the balances that remain on the debts.
  • Car Loan - Balance of $1750
  • Personal Loan - Balance of $4000
Now with the debt snowball plan you are ready to take the $151 that was being used to pay on the second credit card and add this to the car loan payment to make the payments look like this:
  • Car Loan - $150 monthly minimum payment along with the extra $151
  • Personal Loan - Minimum monthly payment of $200
In order to pay the car loan, it would take six months at this payment. The last payment would be $240. Then with the snowball debt method you would go on to pay a total of $501 on the personal loan for six months, and the final payment to pay this debt off would be $234.

As you look at this example of the debt elimination plan, you'll find that in only 17 months four different loans have been repaid. This is a quick way to make your efforts count as you work to eliminate your debt.

More than likely, you've heard about the snowball method if you're interested in debt elimination. However, now you know how it really works and you understand how this debt snowball plan can actually help you..

Return from Debt Snowball to Debt Elimination Programs!

Return from Debt Snowball to Debt Elimination


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