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Edit: I noticed that Consumerist has linked to my post. If you are interested in my story, you might want to click here to read about my site and here to read about my journey out of debt.

If you are ready to get out of debt, may I suggest that you use the ‘Debt Snowball’? 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 your 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.

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’.

If you have written a post about using the ‘debt snowball’, contact me and I’ll be happy to link to your post.

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.