What does a snowball have to do with debt?

Here’s why I hate debt. It has a way of getting you to focus only on the minimum balance due and not on the total loan amount, makes you think you can afford something based on what the monthly payments will be instead of  whether or not you actually have the money to pay for it in full. And it makes you forget the fact that the interest you are paying on your debt is making it so that when all is said and done you will have paid so much more than the original amount you owed in the first place.  

This is how debt sneaks its way into taking over more of your life than you ever intended it to.  The only way to catch it red handed is to face it head on and tackle it to the ground… or throw a huge snowball at it.  I’ll explain the concept of a debt snowball in just a moment. But first I want to show you how much you are overpaying by having debt.

Debt

Let’s say Debbie gets into a car accident and has to go to the emergency room.  Her health insurance policy has a high deductible so when her hospital bill comes, it’s for $1,000!  Debbie doesn’t have enough money in savings to pay this, so she charges it to a credit card. Let’s pretend the interest rate on that card is 10%. It would typically be more than that but for simplicity I’m using a nice round number. The minimum payment is $25 per month.  If she only makes the minimum payments it will take her 49 months to pay off this balance. By the time it’s paid off she will have spent not $1,000 but $1,221.34!

No Debt

Now let’s say Carla is in the same situation as Debbie.  She gets the same $1,000 hospital bill, but she has enough money in the bank to cover it.  So she pays the bill right away and saves herself from having to pay that extra $221.34. She instead puts that money toward savings, or maybe she does something fun with it and buys some concert tickets.  

When you have debt you are allowing your past to steal from your present and your future. Click To Tweet

Do you see the difference?  When you have debt you are allowing your past to steal from your present and your future. Not only is Debbie paying more money, but it’s also going to take her more than four years to pay off the entire balance.  Whereas Carla paid it up front and never has to think about it again. Now think about this on a larger scale. Think about student loans and car loans.  If you only pay the minimum balances each month they take years to pay off. Plus the interest robs you of money you could use toward other things like a vacation, some new furniture, whatever your heart desires!

How to get rid of debt for good

The goal is to get rid of your debt as fast as possible and then build up your savings so that you never have to go back into debt again.  I will show you how to do this in 3 easy steps.

1. Write down every debt balance you currently owe in order from smallest to largest and total them up.  Take a good look at that number and know that with some hard work, discipline, and determination, it will never be this high ever again.
2. If you are behind on any of your payments get caught up as soon as you can. Make sure you continue to make the minimum payments on everything as you go through this process.
3. Now it’s time to incorporate the debt snowball method I promised I’d tell you about.  Take any extra money you have leftover at the end of each month (with the exception of your $1,000 emergency fund) and use it to make an extra payment toward your smallest debt.  Once your smallest debt is paid off you will move onto the next smallest debt and so on until you’ve paid all your debts off. The reason why it’s called a debt snowball is because you start small and gradually add to it, building momentum.  By the time you’re paying on the larger debts, you’ll have so much cash freed up from paying off the earlier ones that it creates a debt snowball.

Of course I realize just because I put it into 3 easy steps doesn’t mean paying off debt is easy.  There will be times when you want to quit. But keep plugging away at it! The debt snowball is designed to keep you motivated because you’ll get some wins right away as you pay off your smallest debts.  By the time you get to your biggest debt, not only will you see the end in sight, you’ll be a pro!

Free debt tracker

Because it’s very important that you write out all your debts, I created a free debt tracker worksheet for you.  This way you’ll know exactly what kind of numbers you’re working with.  You might be surprised at your total. It’s okay if it makes you feel overwhelmed.  Just take some deep breaths and make a commitment to yourself that it’s only going to get better from here.

Also remember you’re not alone.  I’m here to answer your questions and cheer you on!  Feel free to leave a comment or send me an email if you need any advice or encouragement.