Day 23 of 33 Days And 33 Ways To Save Money And Reduce Debt: Illustrated Debt Snowball

Click here to read all of the 33 Days And 33 Ways To Save Money And Reduce Debt posts.

Made popular by Dave Ramsey, the Debt Snowball allows for rapid debt reduction.

I used the Debt Snowball and managed to pay off $11,500 in 10 months.

Here’s a quick overview of how the Debt Snowball works:

  1. List all debts – either from lowest balance to highest balance OR highest interest rate to lowest interest rate – and make minimum payments to all accounts.
  2. Make an extra payment to the first account on your list.
  3. After paying off the first account, take the combined amount (minimum payment and extra payment) which had been going to the first account, and apply it to the second account.
  4. Repeat until all of your accounts have been paid off in full.

The following charts illustrate the power of the Debt Snowball.

Note: I have listed accounts ‘lowest balance to highest balance’ – but you might choose to list them ‘highest rate to lowest rate’. Pick the method that suits your personality.

Chart 1: The Setup

  • Accounts have been listed by their balances – lowest to highest
  • Monthly Interest is an approximation – annual rate divided by 12
  • Extra payment amount is $300
  • M – Month

Chart 2: After Six Months

  • Account #1 has been paid off
  • (Blue Arrow) Amount not needed for Account #1 is added to Extra Payment
  • (Red Arrow) New Extra Payment amount = Account #1 Minimum + Original Extra Payment

Chart 3: After 10 Months

  • Accounts #1 and #2 have been paid off.
  • (Blue Arrow) Amount not needed for Account #2 is added to Extra Payment
  • (Red Arrow) New Extra Payment Amount = Account #1 Minimum + Account #2 Minimum + Original Extra Payment

Chart 4: After 14 Months

  • Accounts #1, #2, and #3 have been paid off.
  • (Blue Arrow) Amount not needed for Account #3 is added to Extra Payment
  • (Red Arrow) New Extra Payment Amount = Account #1 Minimum + Account #2 Minimum + Account #3 Minimum + Original Extra Payment

Chart 5: Complete Chart

As you can see, by focusing on one account at a time and then ‘snowballing’ your payments, debt reduction occurs rapidly. In effect, instead of four separate ‘debts’, all accounts are treated like one ‘big debt’.


Leave a comment if you’ve used the Debt Snowball method to get out of debt.

Click here to read all of the 33 Days And 33 Ways To Save Money And Reduce Debt posts.

Tweet about this on Twitter5Share on Facebook1Share on StumbleUpon2,182Pin on Pinterest0

Add to Flipboard Magazine.

Recent Articles

50 thoughts on “Day 23 of 33 Days And 33 Ways To Save Money And Reduce Debt: Illustrated Debt Snowball
  1. Aimee

    I love seeing your chart! We are using a debt snowball, but one that Mary Hunt is credited with, and we also are always moving our balances to low rates in addition (something most snowballs don’t have you do).

    It’s working well, and we plan to be out of debt in 2 years! :)

     
  2. savings monster

    NCN

    This is a great illustrative way of showing the debt snowball. I created a google docs spreadsheet almost exactly like this but with color so I could track our progress. It really helped because we have been debt free for a few months now!!!

    Keep up the great work!

     
  3. John K

    Thank you, you don’t know how many times I have tried to tell people about this only to be met with blank looks. I was told about this years ago and what do you know, it works. But only if your dedicated to sticking to your budget. One month of slacking off hurts.

     
  4. Harrine Freeman

    What a great way to teach people how to knuckle down and get rid of their debt! As John K says, people don’t usually understand the process. But you’ve done a wonderful job of SHOWING them.

     
  5. Bart

    I’ve made an Excel model that allows you to simultaneously view all scenario’s – lowest APR first, highest APR first, lowest debt first (lowest APR first as the ‘worst case scenario’).

    It shows that, unless you have a real extreme setup, it doesn’t really matter whether you start with the highest APR loan first or not. So we decided to go for the lowest CC’s first – it works encouraging to see a debt completely paid off, and it reduces your liability regarding minimum payments (suppose disaster strikes and for three months you have no money – but now you only have THREE minimum payments instead of FOUR…)

    However, from personal experience I can assure you that CC companies are scared sh%tless about losing the goose with the golden egg – as soon as you pay off a CC, they’ll increase your limit and shower you with free credit transfer checks and usually no APR for three months.

    We used this mercilessly to lower our APR payments and accelerate our payments even more.

    Don’t listen to “experts” who say that you MUST start with lowest APR – that is based on a marginal difference and looks at the numbers only – instead, focus on paying off lowest CC debt first.

     
  6. Mrs. Micah

    We’re planning to pay off one credit card entirely by the end of this week. That’ll be our first real “snowball.” Then we can turn our attention, and money, to the car payments. Student loan repayment doesn’t start until next year.

     
  7. Buildandsucceed

    Great post! This is awesome and people who are in debt and want to get out need to start doing something like this.

    It keeps you motivated, on track and really helps you succeed and actually DO it.

    Once you’re keeping track like this you start sticking to your plan and you also stop splurging on unnecessary things.

    I made a simple spreadsheet with my debts, months of the year, and balances… With my debt/wealth at the end. I update it every time I make a payment.

     
  8. Jason

    This is a good break down. I will be facing paying off allot of debt when I graduate in a little over a year. I have been working on a plan to pay it off an have it on my blog if anyone is interested.

     
  9. Pingback: Free Money Finance

  10. Pingback: Weekly Roundup, Redesign Edition on Consumerism Commentary: A Personal Finance Blog

  11. Pingback: » Weekly Roundup: Heroes Is An Amazing Show on Blueprint for Financial Prosperity

  12. Pingback: Posts I Enjoyed Last Week | The Sun’s Financial Diary | A Personal Finance Blog on Saving and Investing

  13. Pingback: Who Pays For College, The Debt Snowball, Frugality Backlash @ My Roundup » Money and Personal Finance Blog In Silicon Valley

  14. Pingback: Personal Finance Review - Working Too Hard Edition » Money Smart Life

  15. Pingback: The Sunday Review #40

  16. Pingback: » Weekly Roundup: Mail on Sunday Edition @ fivecentnickel.com

  17. Pingback: Roundup for week of 23 September 2007: Plumbing fixtures edition at Mighty Bargain Hunter

  18. Pingback: 107th Carnival of Debt Reduction - New York Edition | Moolanomy

  19. SmBizMan

    This is, assuming two things:

    1. you have extra money to make extra payments

    and, in addition to making extra payments,

    2. you are no longer adding to your credit card balances

     
  20. Pingback: Best Debt Posts from the Carnival of Debt Reduction #107 at Clever Dude Personal Finance & Money

  21. Pingback: 33 Days And 33 Ways To Save Money And Reduce Debt

  22. Pingback: Back To The Basics: How To Get Out Of Debt

  23. sp

    Here is how I handled everything with a balance transfer. I left Credit Card #1’s balance intact (because the interest rate was low and the balance about the same as Credit Card #2 (where the interest rate was about twice that of Card #1). I did a balance transfer for most of the balance from Card #2 to a 0% for 12 months card — let’s call this New Card — and aggressively paid off the small remaining balance on Card #2

    I have taken the balance on New Card and divided it by 11, and I set aside that amount in my budget each month for New Card. Since it was at 0%, I pay only the minimum and then stuff the remainder into a high-yield savings account, to gather interest until the month before the 0% offer ends. What’s the point of having a 0% offer if you don’t have enough to pay it off before the offer ends?

    Once I paid off the remaining balance on Card #2, I sent a snowball to Card #1 every month, plus have been making smaller payments as I have extra money — money that I saved from my gas/groceries/miscellaneous budget, monetary gifts, rebate checks, reward checks, half of my overtime pay, etc.

    Instead of paying two credit cards, I ended up dividing the debt between three credit cards (at least until Card #2 was paid off) and making two transfers to high-yield savings each month. It was a bit more complicated to track, but it will have saved me well over a thousand dollars in interest, because of the balance transfer and paying off the highest rates first.

    I also decided to open a new credit card in the process (Card #4), which is a Chase Freedom VISA. I use this for as many purchases as I can and pay it off at the end of each month. I use the cash rewards checks as extra payments to Card #1 to bring down the balance even faster. Once the debt is gone I will use the rewards to add to my Roth IRA.

    This method is not for everyone, but it works for me because I use a detailed spreadsheet, refuse to touch the high-yield savings account, and can manage a rewards card without incurring additional debt.

     
  24. Pingback: Sunday Morning Link Love ~ March Madness Edition | I've Paid For This Twice Already...

  25. Pingback: Breaking The Cycle Of Borrowing Money And Paying Interest

  26. Pingback: Vote For NCN Over At FMF - Plus, A Stroll Through My Blogroll

  27. Pingback: Me vs Debt

  28. Pingback: Vote For NCN Over At FMF - And Thanks For The Victory

  29. Pingback: Round 2 of March Madness! Vote for the Snowflakes :) | I've Paid For This Twice Already...

  30. Pingback: Help Spread Snowflaking Awareness! - The Snowflake Revolution Has Begun

  31. Pingback: The Power of the Snowball | One Caveman's Financial Journey

  32. Pingback: The Stages of Wealth | Exjackly

  33. Pingback: 5 Rules Of Spring Training (For Your Finances)

  34. Pingback: No Credit Needed Debt Reduction Guide

  35. Pingback:   Take A Good Long Look In The Mirror And Get Ready For Some Serious Debt Reduction by No Credit Needed

  36. Pingback:   How To Get Out Of Debt - An Illustrated Guide To Debt Reduction by No Credit Needed

  37. Pingback: ((ATL)) Princess » Getting Started

  38. Pingback:   Debt Reduction 101 - Beginner’s Guide To Debt Reduction by No Credit Needed

  39. Pingback:   10 Steps To Escaping The Paycheck To Paycheck Cycle by No Credit Needed

  40. Pingback:   Maximize The Power Of Micro-Payments by No Credit Needed

  41. Pingback: Debt Reduction Takes Attitude » No Credit Needed - Debt Reduction Rocks – We Are Living Debt Free!

  42. Pingback: How I Reduced Monthly Interest and Finance Charges » No Credit Needed - Debt Reduction Rocks – We Are Living Debt Free!

  43. Pingback: Debt Snowball: Snowball your way out of Debt

  44. Pingback: Debt Snowball: Snowball your way out of Debt

View My Stats