The Debt Snowball – With a Twist

When you’re in debt up to your eyeballs, you often reach for any bit of advice you think has a reasonable shot at helping you get some much needed breathing room. Given that, you may have heard about “The Debt Snowball,” which is a clever, practical way to get your debts paid off quickly and efficiently. We’ll outline our particular spin on the basic technique just below. This is something you can begin using right now, today to get yourself on firmer financial footing.

It Starts With Your Budget

Yes, it’s true. Everybody hates budgets and budgeting but it’s necessary, especially if things are tight. Your goal here is to free up at least some money to be able to apply it toward paying down your debts. It doesn’t have to be a lot but of course, the more the better. The important thing here is to be honest with yourself. What can you truly live without and what will you say you can live without only to backslide and make those purchases anyway?

You need to go through your spending with a fine toothed comb and find those items that you won’t mind giving up at least temporarily. When you’ve done that, you’ll have arrived at a dollar figure. Some amount per month that you can then apply toward debt repayment.

Corral Your Debts

Having found at least some money to make a start with, the next step is to gather all your debts into one place. Just make a list of everything you owe, everybody you owe it to and what interest rate you’re paying on it.

Once you’ve got the list, begin breaking it down. We recommend breaking these into groups of one thousand dollar increments so your piecemeal list might look like this:

• $1k or less
• $1001 – $2000
• $2001 – $3000

And so on, creating as many categories as you need to in order to capture all of your debt.

Once you’ve done this, arrange the debts in each category highest interest rate to lowest. Start with the $1k or less category first and the debt item with the highest interest rate. Make the minimum payments on everything else and apply every spare dime you can cobble together toward killing that debt off. Once it’s gone, you’ll have your spare amount plus the minimum payment amount of that debt to apply to the debt with the highest interest rate in that category now that the first one is gone.

Keep relentlessly hunting down and obliterating every debt in the sub-$1k category until they’re all gone, and when each one goes away, you’ll find that the amount of money you have available to apply to the next debt increases, which will see you pay the next one off even more quickly.

Do that until all sub-$1k debts are paid, then advance to the next tier.? Again, on this next tier, attack the debt with the highest interest rate first, and work your way down, methodically clearing out each debt tier before moving onto the next one.

Depending on how much debt you have and from how many sources this may take some time, but if you consistently apply these principles then the amount of money you have for debt reduction and elimination will continue to snowball making it easier and easier to get an increasing amount of breathing room and eventually you’ll reach the point where you’re paying extra on those dreaded student loans and other long term debts.