- My husband and I accomplished a goal this year using the debt snowball method that means a lot to us. We paid off my husband’s graduate student loans, making him officially debt free (outside of our home).
When we got married two years ago, we set out to pay off his car note in year one of marriage and this year we set out to pay his student loans. We accomplished both along with a few other financial goals.
One of the strategies that we used over and over to accomplish both goals is called the debt snowball method.
Debt snowball is a method created by Dave Ramsey used to tackle debt that picks up more momentum as you go. With this method you start paying off your debt from smallest to largest.
As you focus heavily on paying down one debt, you will pay the minimum balance on the rest. As you pay off your debt, you will roll the amount you used to pay those first debts into paying off your bigger ones — like rolling a snowball down a hill.
The steps look like this:
• List all debts in order of least to highest amount
• Commit to paying the minimum payment on every debt.
• Determine how much extra can be applied towards the first debt.
• Pay the minimum payment plus the extra amount towards that first debt until it is paid off.
• Once a debt is paid in full, add the amount being paid towards the first debt to the minimum payment on the second priority debt, and apply the new sum to repaying the second priority debt
When we started on this journey my husband was paying $300 towards his $8,703 car note. We committed to paying an additional $300 towards the note to get it paid faster. We still had a balance by the end of the year, so we used my husband’s annual bonus to pay off what was left on the note.
Once the car note was paid off, we rolled the $600 we were paying towards the car payment into paying his student loan payment that had a balance of $12,384. We added the $600 to his monthly payment of $300 and contributed an additional $100 towards the loan when we could.
Due to the COVID-19 pandemic we didn’t receive an annual bonus. But were able to use our stimulus check funds to pay any additional left-over balance towards paying the debt off.
We will continue to use this method and roll over the $1,000 we were contributing towards both debts into our final and last debt, my student loans.
This method has worked great for us for a few reasons:
1. It does not feel like you are changing or adjusting too much of your life.
Rolling over our current payments into the next one allowed us to maintain our lifestyle. Committing to the next debt payment makes it less likely for someone to use the money that would have become available for other things, while at the same time, allowing for nothing to change in one’s expenses.
We were paying the same amount, but with laser focus on one debt at a time, allowing for us to make big strides towards each one. Where most people fail is that when money is freed up, they use it on other expenses instead of using it to pay off the next debt.
2. You get to celebrate small and big wins
Reaching our goals has been monumental to maintaining momentum and staying motivated. The snowball method allowed us to have small wins by paying off smaller debt and building it into bigger ones.
Paying off debt is not fun, but accomplishing each goal feels amazing and has helped us feel encouraged throughout this financial freedom journey.
We’ve already prepared our strategy for paying off our last piece of debt using this method. We are excited to be on this journey and look forward to having you continue to join along.
