For this post we’re getting back to basics. Today’s topic is one that many of you may already understand. While Johnny and I are fortunate enough to be out of debt, we realize debt is a reality for many. And so we’d like to share one of the tools that helped us slay the Debt Monster.
I don’t know whether it’s the lack of financial education, the outrageous cost of higher education, our “biggie size that” American culture, or a combination of these and other issues that causes almost all of us to start out our adult life in the red. If you’ve never had any debt in your life, you’re basically a unicorn. When Johnny and I first started incurring debt, we didn’t like it one bit. But we had to pay for our degrees somehow. It seemed like the day of reckoning for the beginning of our payments (after graduation) was ages away. But come it did as we wondered how in all holy curse words we would go about starting a $20k loan payoff.
We had four different loans to pay off, and we needed a plan. Having recently read Dave Ramsey’s The Total Money Makeover, we had our marching orders, including the debt snowball plan. It played a star role in our Lifetime original movie The Debt Slayer Next Door, so naturally we’d like to share more about it.
The Debt Snowball Plan
So how do you get started? Do I really need to wait for it to snow? How cold will I get? Great(ish) questions! It’s actually really easy.
- Take a look at all your loans and order them from smallest to largest.
- Cut your unnecessary budget expenses and put aside as much money toward debt payoff as you can possibly spare.
- Pay the minimum on all loans, except your smallest.
- Use all extra monthly debt repayment money to put toward your smallest loan.
One of the coolest tricks to the debt snowball plan is how the payments compound (thus, the term “snowball”). Once you’ve paid off one loan, you take all the money you were putting toward paying it off and add it to the next loan. Once that next loan is paid off, you take all the money that was going toward that loan and put it toward the following loan. Here’s a real-life example from our very own debt snowball (that Johnny has nerdily saved as a keepsake):
Our very first debt snowball started with $400 total budgeted each month.
A few months later, we pumped steroids into our snowball and upped the ante to $1000+/month.
The debt-snowball method was perfect for us. We took a hard look at our cash flow, our expenses, and our savings, and came up with an aggressive, yet doable, payoff timetable. And we saw results almost immediately, which helped keep us motivated. So motivated, in fact, that we sped up the process and started throwing even more money at it.
A few final thoughts:
- Conventional wisdom says to pay off the highest interest rate loans first in order to save money paid on interest. If you’re able to do that and stay motivated, that’s awesome. But for Johnny and me, seeing the fast progress on that smaller, first loan is what really got us fired up and kept us movin’ and groovin’.
- You don’t have to be perfect. Once you make a payoff plan, it’s okay if you have to deviate from it from time to time. Unexpected expenses arise. Life happens. But once things settle down, get back on that payoff horse and ride into the sunset. That’s a really weird sentence. Johnny must be rubbing off on me. 🙂
- Have an emergency fund. Dave Ramsey recommends having $1000 saved up before starting the debt snowball plan. That’s all Johnny and I had to begin with, and we tried to put a hundred dollars or so toward savings each month.
And that’s the debt snowball plan. If you’re paying off debt now, are you snowballing your payoff? What plan are you using to stay motivated in paying off your debt? Can I get any “amens” from fellow snowball worshipers in the house?