The Debt Snowball Strategy AKA How To Get Out Of Debt Fast

Close your eyes for a second and think about what snowball looks like rolling down a hill.  With every rotation, it picks up more snow, more speed, and more momentum.  Pretty soon it’s becoming an unstoppable force, knocking out anything in its way.  That’s the debt snowball strategy in a nutshell.  

debt snowball strategy

It turns every success you have paying down debt into a HUGE energy amplifier capable of knocking out anything from the smallest to largest debts.

Student loans? Car loan? Credit Cards?

No problem.  They don’t stand a chance against your snowball once it gets rolling.

Sounds awesome right?  It is. Must be hard to do right? Nope.  It’s super simple

That said, it does take work and focus, though that’s probably not a surprise.  That’s why most people who are in debt stay there, despite the stress it adds to their lives. But you aren’t most people, are you?

You ready to do it?  Ask yourself these questions.

  • Am I crystal clear on why you’re doing this?
  • How willing am I to sacrifice to achieve financial freedom? 
  • Am I willing to create a budget?

Still with me?  Good.

I don’t mean to scare anyone off, but I do want to make sure we are on the same page before we dive in further. I’m not suggesting there won’t be joy along the way. You are going to achieve things you never thought possible, and with every little win, your confidence will skyrocket. But it will take time.

​Hope is Not a Strategy

When it comes to improving your personal finances, optimism and good intentions alone don’t cut it. As I talked about in our guide on debt, you need a plan.

Preferably an easy-to-follow, no-BS plan. 

Two of the most effective debt reduction strategies out there are the debt snowball and the debt avalanche. The only difference is the order in which they suggest you start paying down debt.  Both harness the power of focusing on your debts one at a time, rather than trying to play Whack-a-Mole with all of them. 

The Debt Snowball Strategy

In this method, you will be paying down debt in order of smallest debt to largest debt, ignoring the interest rate or minimum monthly payment amount. I used the snowball method to pay down my own debt because I knew that I’d be more likely to stay motivated if I had some “quick wins” early on. Knocking out those small debts in the first few months provided a much-needed emotional and psychological boost.

The Debt Avalanche Strategy:

Using this approach, you will be paying down debt in order of highest to the lowest interest rate. This method may appeal to more mathematically minded individuals since you’ll likely pay less in interest over time, but you may have to wait longer to see the first jump in your cash flow.  The remainder of this post will be focusing mostly on the debt snowball strategy, but if you’re interested in learning more, here’s a great resource for implementing the debt avalanche strategy.

Which Strategy Is Right For You?

There is no “better” or “worse” method here. It all depends on how you’re wired. Either approach will lead to successful results as long as you stick with it. 

Once you’ve chosen a method and listed out your debts in the appropriate order, just make minimum payments on everything except the first debt on your list, and throw ALL your extra cash flow at that one. This creates a compounding effect because once that first debt is paid off, you’ll add the money you were spending on its minimum payment to the next debt, thus paying down the principal on your debts more and more quickly as you go along.

The Debt Snowball Strategy in Action

Sometimes in personal finance, a picture is worth a thousand words. Let’s look at an example to see what will happen to your snowball as you start paying down debt.  

cash flow chart

In this example, there is $575 leftover once expenses and debt payments are subtracted from monthly income. That cash flow amount should go into your snowball and be used to pay down the principal each month on the smallest debt you have. 

cash flow chart 2

Boom! As soon as you pay off your first debt, your cash flow increases by $50, since you no longer need to make a minimum payment on that debt. You now have $625 to put towards your growing snowball, and the to pay down the principal on your next smallest debt. 

cash flow chart 3

Holy cow! With all your debts paid off, your cash flow has increased to $1,200. That’s like getting a 10% raise at work! And instead of throwing that money at your debt, you can now put it toward investments, home improvements, or other meaningful uses.

As part of our guide on how to build a budget that works, we walked through a process for documenting your monthly finances. If you haven’t done so yet, I’d highly recommend it as it will make setting up your snowball a breeze.  

Recommended Reading:The Envelope System: A Simple and Effective Way to Budget​​​

Introducing the Snowball Dashboard!

I’m a huge fan of using visual aids to help me get organized and stay focused. During my financial transformation, I found that I needed something that was simple to set up and maintain, and that would provide all the information I needed at a glance. This free Snowball Dashboard template is based on what I created on the whiteboard in my office.  

Note: Don’t Overcomplicate It!

In the interest of simplicity, this template treats the entirety of a debt’s minimum payment as principal. This is not what really happens with your payment, but differentiating between interest and principal can get complicated to track, allocate and update.

That said, since you’ll update the monthly balances for all of your debts, these totals will stay on track over time. For the debts you’re not actively paying down yet, the numbers are just estimates anyhow, so they won’t matter until you start focusing on them.

My point is this; use this tool for guidance and motivation.

It will evolve and refine as your journey progresses, and much like any forecast, its accuracy will improve as you get closer to the finish line. You’re trying to learn how to get out of debt, which is hard enough. Don’t make it more complicated than it needs to be

Filling Out Your Dashboard

This tutorial will walk through how to set up a debt snowball, though i will make a point to call out where you’ll need to make changes if you’ve chosen the debt avalanche method.

When using the template, pay attention to the key at the top of the page. It will tell you which items should be edited and which should not.  

Personal Finance Key

Step 1: Input your monthly income

For this step, just replace the examples with your actual information (e.g., replace “My Paycheck #1” information with your income source, date, and amount). Don’t worry about deleting any lines you don’t need, just make sure the amount received is listed as $0.00. You may find that you’ll need them in the future, so it’s better just to leave them.

Monthly Income TMPF

Step 2: Input your “Must Have” expenses

Here you will input your projected expenses, due dates, and amounts. If you have different expenses than the ones listed, go ahead and rename them. Again, if you don’t have expenses in a particular category, you can just leave it alone.

Need more room? You can add additional rows if you must, but I would challenge you to reassess how many “Must Have” expenses you really have. 

Must Have Expenses

Step 3: Input your debt information

Next, list your debts, due dates, minimum payments, interest rates, and balances.

And don’t forget:

  • For the debt snowball strategy, list them from the smallest balance to the largest balance
  • For the debt avalanche strategy, list them from highest interest rate to lowest interest rate
TMPF Debt Input

Step 4: Input your “Nice To Have” expenses

You’re probably getting the hang of this by now, right? 

Nice To Have Input

Step 5: Review your “Monthly Snapshot” to see your total debt balance and cash flow

This is a super simple, but extremely useful view. It summarizes your most important monthly financial KPI’s (key performance indicator) in one quick view. It’s also a good way to check if everything in the template is working properly by making sure the category totals match.

The “available cash flow” field will auto-populate, but it’s a good idea to learn more about how to calculate and manage cash flow since it’s a really simple concept that provides you a ton of insight into how your finances are doing.

Monthly Snapshot TMPF

Step 6: Add any “extra” money you have for debt that month

What is this magical “extra” money? It could be money from a tax return, yard sale, overtime, or a check from grandma. Whatever it is, put it in this box during the month you receive it to give your snowball a good, hard, push down the hill to pick up more momentum. Just make sure you update it the next month.

debt snowball strategy

Step 7: Review your snowball dashboard

This view shows you how many more months of “snowball payments” it will take to pay off a specific debt. Your snowball payment will only be going to the lowest balance item on the list, and once that one is paid off you’ll move on to the next one, and then the next one, etc.

Snowball Dashboard

What’s Next?  Start Paying Down Debt!

You now have two tools to help you along your journey to being debt-free, a budget and your debt snowball strategy. 

Before you get started, I highly recommend you take your first few months of cash flow (or around $1000) and put it into a standalone savings account. This will be for one of your emergency funds, which will allow you to bounce back from any curveballs life throws at you while you’re paying off your debt (you know, fun stuff like a new water heater, car repairs, etc.).   

Do you have any tips for someone trying to get their debt snowball strategy rolling?

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