Personal Finance » Debt

Getting your debt snowball rolling

“Go confidently in the direction of your dreams. Live the life you have imagined!” – Henry David Thoreau

Have you ever noticed that hiding from something scary can actually make it scarier? Hiding under the blankets to avoid the monster under the bed doesn’t actually make the monster disappear. In fact, it’s often not being able to see the monster and the uncertainty attached to where it is, how big it is and what it’s doing that sends our brain into a tailspin and makes hiding from it an even scarier experience. As kids, we learn that the best way to vanquish the fear is simply to take a deep breath, come out from under the blanket, flip on the light and check under the bed. Simply put, when you face your fears you tend to find that they’re not as scary as your brain suggested they might be. Whether it’s a monster under the bed or a big mountain of consumer debt, the strategy for conquering it is the same; take a good look at what you’re dealing with and then attack it with everything you have!

In last week’s post, I wrote about conquering the debt mountain and I mentioned the debt snowball strategy. I had a few conversations this week with people asking for more details so I thought it would be worth talking about the concept in a little more detail:

Know your monster

The first step is to take an honest look at all your debts. Pull out your credit card bills and other financial statements and write down how much you currently owe to each institution, the interest rate, and the minimum monthly payment. Take a look at what you wrote down, ignore the sinking feeling in your stomach and pat yourself on the back for getting out from under the blanket. You just took the first (and biggest) step towards conquering the monster.

Formulate your plan of attack

First, take the list of debts and organize them in order from smallest to largest. The interest rates don’t matter, only the balances. (It may seem counter-intuitive to attack a balance of $2000 @ 5% before attacking a $10,000 balance that you’re paying 29.9% interest on but put that instinct aside for a second – all will become clear).

Next, take a look at your monthly income and your monthly expenses. Determine how much extra cash flow you have each month and decide how much of that you’re prepared to commit to your debt elimination plan. If you don’t have any extra cashflow then decide how you can reduce your expenses or increase your income to find some. It doesn’t matter how much. Even $50/month will make a surprising impact over time. Finally, decide what percentage of any ‘unanticipated money’ (tax refunds, gifts, bonuses, etc. ) you’re going to commit to your debt plan. Once you have those numbers you’re ready to start your snowball.

Get your debt snowball rolling

Like most successful strategies the debt snowball concept is deceptively simple. Pay the minimum payments on each debt every month and then put your extra debt-busting dollars (the amount you allocated from your unpurposed money plus your chosen percentage of any unanticipated money that comes in) against the smallest debt. Do this until the smallest debt is cleared and then take the money that you were using for the minimum payment on that debt, roll it into your snowball and put all that money against the next smallest debt. As you pay off more debt so the amount that you have available in your snowball to attack the remaining balances increases. This ever-increasing amount is at the heart of the strategy and what makes it so powerful; by the time you get to the biggest debt your payments are much bigger and the debt can be reduced much more quickly than if you’d started with that one at the beginning.

Achieving smashing success

The debt snowball strategy works well because eliminating your first (smallest) debt in a relatively short amount of time gives you a strong sense of accomplishment and fires you up to keep going. It can be really disheartening to hack away at a huge balance for 12-15 months and to know that you’ll still have it hanging over you for another few months and it’s this frustration that derails a lot of people on the path to achieving their goal. the other advantage of starting small is that when you’re fired up by success you tend to get pretty creative in seeking out ways to increase your success even more. It’s amazing how many ways you can find to reduce expenses and increase the amount of money you have to apply to eliminate your debts especially when you’re close to reaching your goal. There are a number of websites and blogs written by people who are sharing their journey to debt freedom and you can get some great ideas for saving and creating money from them along with the inspiration and motivation that comes from knowing that other people have overcome the same challenge. All we have to do is to get out from under the blanket and attack our monsters!


  1. Jane Savers @ The Money Puzzle

    To reduce my debt I am working on finding snowflakes – extra bits of money that I can pack together to make a snowball.

    I am selling tings (an unused freezer, a godl bracelet) and I am planning a huge yard sale.

    Every penny I can generate and every dollar I can cut from my budget goes to the debt.

    It takes a lot of snowflakes to make a snowball but I am starting a $19,000 (the total amount of my debt) avalanche.

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