Effiectively Creating and Using your Debt Snowball

by GettingFreedom on April 19, 2012

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It is very tempting, while you’re in the middle of trying to get debt free, to skip creating your emergency fund and move directly onto building your debt snowball.  I strongly urge to you press through and create your emergency fund first.

Ideally you would have $1000 set back in your emergency fund before you moved on to creating your debt snowball.  However, if you just cannot wait, you can begin creating your debt snowball after reaching $500 {as long as you continue to contribute to your emergency fund.}  In doing this though, you really are not receiving the biggest benefit.

Another point to keep in mind before creating your debt snowball is that you have to have made the commitment to no longer use credit cards or create any additional debt through loans, or other credit agencies.

Creating and Using Your Debt Snowball

To create your debt snowball you first have to list all of your debts in order from lowest balance, to highest balance.

So lets say that for Suzy, this is her list::


After you have all of your debts written out, you have an idea of where to start.  Always start with the smallest balance first.  Pay minimum payments on the rest of your debts, and throw any extra money you have after you’ve figured out your monthly cash flow plan to your smallest debt.

You will see immediate progress on your smallest balance!  This will create the momentum you need to continue to pay off the rest of your debts–as well as the boost of confidence you need to keep you on the right track.

As soon as you are finished paying off your first debt–take the amount that you paid on that debt and add it to the minimum payment owed on your second debt.  This will become your new snowball payment.


In doing this, we’ve cut the amount of time it takes to pay off your first debt drastically!  Since you will be applying the money you would be spending on your first debt onto your second–that one will also disappear quicker, yet you won’t be out any additional money monthly.

Keep in mind that through this process, if you continue to slash your expenses elsewhere, tack it onto your debt snowball payment to see even quicker results!  Through this method, we were able to pay off over $40,000 in debt in about 3 years–without changing our income!

And..we were completely debt free {except for our mortgage} for a week! Ha.  Yeah, I know.  Not that impressive.  That’s exactly what we’ll be talking about in next week’s Finding Freedom Boot Camp. ;)


Get your copy of the Home Management Binder that includes a Debt Snowball Worksheet as well as Monthly Cash Flow Plans.



This post is part of Frugal Friday.

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