The leaves have fallen, there’s a chill in the air, and winter is well on its way to many parts of the U.S. Although we aren’t in a winter wonderland quite yet, we can still discuss one of the most important strategies for getting out of debt: the debt snowball.

The phrase “debt snowball” is a metaphor to describe a very successful way to pay off debt and walk toward financial freedom. Imagine you are standing on the top of a mountain that is covered in snow. You reach down to make a snowball and set it on the ground to roll it down the side of the mountain. As it rolls, it collects more and more snow. When it reaches the bottom of the mountain, it has collected so much snow that it looks more like a giant boulder. This is the idea behind the debt snowball.

To put this plan into action, you must first decide to stop creating debt. Make a zero-based budget you feel works for you. Decide right now that you will not use a credit card or take out any more loans. Then, once you have stopped creating more debt, and you have saved $1,000 for an emergency fund, you can move forward with this plan for eliminating your debts.

To “make the snowball” at the top of your “debt mountain,” you just look over every debt payment you have (except your mortgage) and put those debts in order from “least amount owed” to “greatest amount owed.” 

Next, you make a plan to pay off that debt as quickly as possible. You can get creative here: have a yard sale, take a month off from eating take-out, have a one-month spending fast. Completely pay off that first debt. Once it is paid off, turn to the next debt on the list. Everything you were paying toward the first debt now gets added to the second debt. Instead of the monthly minimum payment on that second debt, you make that payment plus the amount you had been paying on the first debt. 

When that debt is also paid off, you move the payments from the first two debts over to the third debt and so on until you have paid off your final debt. Over the course of this process, the amount that you budget monthly toward your overall debt will not change. Yet, each time you pay off a debt, the amount available in the budget for the next debt grows—like a snowball rolling down a hill. Eventually, you will be completely out of debt!

Have questions about paying off your debt? See how we can help today!