Everything About The Debt Snowball Method Of Paying Off Debt

Are you ready to pay off your debt but have no clue where to start? 

Read the first post in my series about paying off your debt, then read through this series until you get to this post, our seventh in the series.

We’re finally ready to discuss one of the potential methods to pay off your debt.

Now that you’ve changed your money mindset and your money habits, you just need to pick the method or combination of methods that will work best for you.

Let’s get started with one of the most popular debt pay off methods, the debt snowball.

What Is The Debt Snowball?

The debt snowball is a term that was popularized by personal finance guru Dave Ramsey. It’s really simple to follow and that’s why so many people have had success with it.

Essentially, you take your list of debts that you owe (you made this list in our very first post in the series) and order it from the debt with the smallest balance owed to largest balance owed. As you always should, you’ll make the minimum payments on every debt you owe.

The key is that any extra money you have left will all be paid toward your debt with the smallest amount owed. This will result in getting rid of some of your debts quickly and give you motivation to continue your debt pay off journey.

Once you pay off your first and smallest debt, you’ll take all of your extra money and the original minimum payment from that loan and use that money toward your debt with the next smallest balance.

Continue rolling these amounts over as you eliminate loans and the amount of the payments you’ll be making will increase. Eventually all of your consumer debt is gone. Then, if you want, you can attack your mortgage, if you have one.

If you haven’t picked up on the metaphor yet, as you pay off each debt the amount of money you’ll apply to the next loan you’re paying off will increase, much like a snowball rolling down a hill.

Pretty cool, huh? While this method is psychologically motivating because you’ll be paying off individual debts quickly in the beginning, it isn’t the mathematically optimal way to pay off your debts.

The mathematically optimal way is called the debt avalanche, which we’ll discuss next week. For now, let’s just focus a bit more on the debt snow ball and the pros and cons of this method.

Debt Snowball Pros

  • This method is really easy to follow. It doesn’t involve making any decisions other than the decision to follow the debt snowball methodology.
  • You’ll pay off your first debt pretty quickly. That will give you motivation to pay off the next debt faster.
  • As you pay off each debt quickly in the beginning, you’ll quickly begin to see the size of the payment on your smallest debt (your debt snowball) grow which is very encouraging.

Debt Snowball Cons

  • The debt snowball is not the mathematically optimal way to pay off your debt. You could end up paying off a 0% car loan before you paid off a 25% credit card loan if the car loan had a smaller balance.
  • The debt snowball can over simplify your debt situation. In reality, there are other factors to take into account when deciding which debt you should pay off first.

As you can see, the debt snowball method has some great benefits but it has its flaws as well. If you’re majorly overwhelmed and just want to see some solid progress, this method might be best for you.

However, if you’re a more logical person who doesn’t need to see a psychological payoff early on in the process, you might want to consider another debt pay off method.

Next week, in our next post in the series, we’ll discuss the debt avalanche. The debt avalanche is an alternative to the debt snowball debt pay off method that makes more sense for logical minded people to follow.

Have you ever used the debt snowball method to pay off debt? Did it work for you, or did you prefer another method? Do you have any questions about this method that I could answer for you?

A Small Emergency Fund Is Essential To Debt Pay Off Success

Are you ready to pay off your debt but have no clue where to start? 

Read the first post in my series about paying off your debt, then read through this series until you get to this post, our sixth in the series.

I bet you’re excited about the money you’ve been saving by paying attention to the little things.

Now you want to know what you’re supposed to do with it.

Well, today’s your lucky day, because what you need to do with the money you’re saving is to set up a small emergency fund BEFORE you start paying off your debt.

It might seem counter-intuitive to put money in a bank account that earns less than 1% interest when you’re paying even more interest on your debt. However, it makes perfect sense based on the mindset you’ve been adopting throughout this series.

The goal is to completely change your life and pay off your debt for good. Having a small emergency fund gives you a much better chance of making that a reality.

Why You Need A Small Emergency Fund

Our goal is to completely destroy any consumer debt you have while never incurring any additional consumer debt. With that in mind, does it make sense to have no funds available for unexpected emergencies?

If an emergency pops up that you have to pay for immediately and you’ve spent every penny you have paying off your debt, how would you pay for that emergency?

You’d have to incur more debt to pay for your emergency. That’s exactly what we want to never happen again.

You might want to argue that it doesn’t matter if you incur just a little bit more debt for the emergency because in the end, you’ll still pay less in interest by not having an emergency fund.

That may be true for the most dedicated debt destroyers, but for the majority of people you’d probably be wrong. Why? Because paying for your emergency with more debt breaks all of the good habits you’ve practiced since swearing off consumer debt for good.

Once you break out the credit card just one time to pay for your emergency, you remember how it feels to swipe the card and not have to immediately pay for the purchase you just made.

This is dangerous territory for anyone who has gotten into serious debt. You don’t want to take any chance of relapsing into your old consumer debt incurring ways.

The small emergency fund will allow you to pay for most emergencies with cash. This will keep you from breaking out the credit cards and it will prevent you from taking the chance of relapsing into debt incurring bad habits.

What happens when you use some of the emergency money? Simply pause your extra debt payments and rebuild the emergency fund to your desired amount. Which brings up a great question. How big should your small emergency fund be?

How Much Is A Small Emergency Fund?

The amount of your emergency fund should be specific to your personal situation. Some people with very few expenses could probably get by with an emergency fund as small as $500.

If you have a more average budget, I’d probably go for about $1,000 to $1,500 on the high end. Of course, if you’re seriously worried about debt relapse, the absolute most I’d recommend is one month’s worth of expenses.

The key when deciding on the amount of your emergency fund lies in how expensive some of unexpected items would be for you.

If you got into a car accident, what is your auto insurance deductible? If you had a medical emergency, what is your health insurance deductible? If you have a car that’s slowly biting the dust, how much do you think it’d cost to get your car running again?

Try to think of the possible emergencies that would prevent you from your goal of never going into more consumer debt again. Then, choose an appropriate sized emergency fund.

Just remember, only choose a number big enough to get by. You don’t want a ton of money sitting in cash only earning 1% or less when you have credit card debt interest racking up at 20% or more.

You don’t need to have an emergency fund large enough to cover big emergencies like job loss yet, because if something that large happened you’d have much bigger problems than trying to pay off your debt as fast as possible.

Once you’ve paid off your consumer debt you can work on building your emergency fund to a larger level to cover these types of emergencies.

Don’t Use Your Emergency Fund For Fake Emergencies

One last note about the small emergency fund you’ll be building. Don’t use it for fake emergencies. Doing so is just as bad as incurring more consumer debt. Finding a great deal on a vacation or an item you’ve been wanting forever is not an emergency.

An emergency is only something that threatens your life, your health, or your wealth. A broken down car that can’t get you to your job threatens your wealth. A car with a broken air conditioning system doesn’t.

Know the difference and don’t use your emergency fund on fake emergencies.

The next step in your debt pay off journey is to learn about the different debt pay off methods. We’ll start with the debt snowball method next week.

Are you already on your way to completing your E-fund? How much will you keep in it? Have you ever had to use your emergency money? I want to know all about you and your adventures on building your cash stash. Leave a comment down below!

Small Changes Add Up Quickly When Paying Off Your Debt

Are you ready to pay off your debt but have no clue where to start? 

Read the first post in my series about paying off your debt, then read through this series until you get to this post, our fifth in the series.

So far you’ve committed to getting rid of consumer debt for good and changing your mindset to successfully pay off your debt.

You’ve also you’ve figured out why you’ve incurred the debt you have, either because of a life changing event or a money sinkhole, and you’ve tracked your income and expenses.

Now it’s time to take some action and start making real changes in your financial life.

Why You Should Start With The Little Things

The most important part of paying off your debt is permanently changing your mindset to one that allows you to live within your means. If you start making drastic changes immediately, you might end up in a situation much like a yo-yo diet.

Instead of pushing yourself to the limit by completely changing your life all at once, you should start with the little things and gain momentum as you get further along in your debt pay off journey.

What Are The Little Things?

Great question! The little things are whatever you see in your historical expenses that you wouldn’t mind getting rid of or scaling back on. Unfortunately, every person is different so I can’t tell you exactly what to cut.

However, there are quite a few expenses many people would never miss.

Some Expenses You Probably Won’t Miss

Stupid fees are one expenses that absolutely no one would miss.

Quit incurring fees from over-drafting your bank account, making late payments or little fees that provide no value to you whatsoever. Pay more attention to your finances and you could save hundreds in this category in just a couple short months.

Another trick companies use to take your money is the subscription model. You have the best intentions when you signed up for the gym or those magazines sitting unread on your end table, but you never really got around to taking advantage of your subscription services.

Instead of letting subscriptions continue to take your money month after month, simply cancel these services. There may be termination fees, but if you’ll save money in the long run by cancelling now, generally it is best to pay the fee and get it over with.

Another way to make a small change is to simply cut back a little bit on your every day expenses. Decide on a percentage you’re comfortable with and reduce your spending in some of the categories you know you overspend in.

It might be clothing, dining out, or buying gourmet groceries. Regardless of which expenses you decide to cut back just a little bit on, it’ll all add up in the long run.

Some Little Actions You Can Take To Save Some Major Money

Believe it or not, there are some simple actions you can take that won’t change how you live your life at all but these actions will save you a ton of money.

My personal favorite is called “the ask”. All you have to do is call up a service and ask for a discount. You’d be surprised how often it works.

One example of “the ask” that I use every few months is calling my cable company and asking for a discount. Whenever they try to increase my rate, I simply call and ask for a discount.

Sometimes I have to ask to talk to a supervisor or the customer retention department, but I’ve received a discount every time I asked! This discount has ranged anywhere from $120 to over $600 per year! That’s a lot of money when you’re trying to get out of debt.

Another great way to use “the ask” is to lower your interest rates on your credit card debt. Many times, if you simply call your credit card company and ask them to reduce your interest rate they’ll comply.

Make sure to highlight why they should lower your rate. Explain to them that you’ve made the last year’s worth of payments on time and you’ve been a customer for 5 years.

What Should You Do With All Of The Money You Save?

If you’re now spending less than you earn and these techniques have saved you even more money, I bet you’re thinking that you should use this money you saved to immediately pay down your debt.

There is a better place to put at least a little bit of that money, which we’ll discuss in the next weekly installment of the get out of debt series.

What little expenses have you been able to reduce or completely cut out without missing them? Any big win stories on using “the ask”? I’d love to hear about it in the comments below!

Examine Your Financial Habits For Money Sinkholes

Are you ready to pay off your debt but have no clue where to start? 

Read the first post in my series about paying off your debt, then read through this series until you get to this post, our fourth in the series.

You don’t have to experience a life changing debt event to end up in debt.

Simple consumerism or spending more than you earn for a long period of time can put you in an equally horrible debt position.

Many people don’t realize how their small decisions can add up into a big problem until they experience hitting rock bottom or get that dreaded wake up call alerting them to the now bigger issues.

What Is A Money Sinkhole?

I personally think these types of money issues are very much like a sinkhole. A sink hole forms when an underground water source slowly eats away at what supports the ground above.

At first, you’ll never notice a problem because there are no visible signs of problems. As the support continues to be eaten away, the ground starts slowly sagging.

At this point, you’ll start to see small problems like cracks on concrete and tiles in your home. Then one day, without notice, the surface collapses into the hole below, causing massive damage. When the sinkhole shows itself is the moment that most people realize they have a problem.

Hopefully you haven’t actually gotten to the point of a money sinkhole swallowing your financial home, but there is a good chance your money habits are slowly eating away at the ground supporting your financial home if you’re in debt.

Instead of continuing these bad money habits that will eventually lead to your home being swallowed by a sinkhole, you can make a change after recognizing what financial problems lead to money sinkholes.

So How Do You Find A Money Sinkhole?

It’s hard to find a money sinkhole when you personally can’t see any visible signs of your spending problems. Luckily, you can you can find these problems before you get too far into debt. So where do you start?

The first step to discovering is to track your income and expenses. You’ll want to have at least two months of data in order to weed out any anomalies in the data.

The more data you have the more accurate your snapshot of your situation will be. Here’s a couple of quick ways to figure out what your prior income and expenses were in case you haven’t been tracking your finances.

One way to track income and expenses quickly is to use an aggregation tool like Mint.com. Simply set up a Mint account and link all of your financial accounts (banks, credit cards, loans, etc) to the Mint interface. Once you’ve done that, categorize any uncategorized transactions and take a look at the data in front of you.

If you’d prefer not to use an aggregation tool, you can do the same thing with a bit of time. Take statements from your financial accounts for the last few months and a piece of paper or an excel spreadsheet. Then, simply classify all of the line items on your statements into income and expense categories.

Once you have your income and categorized expense data you can start looking at the numbers to see what type of story they tell. The first thing you should check is whether you’re spending more than you earn.

The next exercise is to order your expenses from the largest expense category to the smallest expense category. If you spend your money based on your values, you should see the things you value highest at the top of your expense list and the things you value the least at the bottom of the list.

If that isn’t the case, you have some work to do.

The next step is starting to take action by making small changes, which we’ll cover next week. You’ll be surprised how quickly they add up.

Chances are you can make some changes immediately that you won’t even notice, so we’ll be able to get an easy win up front!

Looking back, have you ever experience any money sinkholes with your finances? I’d be interested to hear what you find either in your past or present finances.

How To Discover Why You Ended Up With A Terrible Mess Of Debt

Are you ready to pay off your debt but have no clue where to start?

Read the first post in my series about paying off your debt, then read through this series until you get to this post, our third in the series.

I bet you’re psyched to figure out which debt you should pay off first, but you’d be jumping ahead of yourself.

In order to completely vanquish consumer debt for good, as your new mindset states, you must first figure out how you got into consumer debt in the first place.

Without this knowledge, you can’t prevent yourself from falling into the same consumer debt trap twice.

You must examine your past and learn from the mistakes so that you don’t make them again in the future.

There are two major ways most people get into debt. The first is a major life changing debt event and the second is through simple money sinkholes, which I’ll explain in the next installment of our series.

For now, let’s take a look at some major life changing debt events that could have caused your debt.

Look In The Past For Life Changing Debt Events

Not all debt is due to overspending and consumerism, but that doesn’t change the fact that you want to get rid of it. There are a few times you can have life changing events that put you in serious debt that you never expected to incur.

Take a look back in your past and see if you can find any of these life changing, debt incurring events.

Higher Education and Student Loans

The first life changing event was the one my wife personally experienced. She ended up with over $80,000 of student loan debt.

Going to college and taking out student loans can leave people in a pretty serious debt situation, much like the one we were in. You can graduate debt free if you really put your mind to it, but the past is the past.

To avoid incurring too much student loan debt in the future, don’t let yourself or any family members go into more debt than they can afford.

You need to calculate this based on their post college career path. Make sure you have a solid plan to pay that debt off once you achieve your educational goals.

Medical Bills – With or Without Health Insurance

Another horrible, life changing debt event happens more often that we’d like to think. A simple medical problem can easily put someone with or without health insurance into thousands or tens of thousands of dollars of medical debt.

Even though you can normally negotiate the bill down or set up interest free payments, this debt can be soul crushing.

The best way to avoid going into a huge amount of medical debt is to protect yourself and your family with health insurance. Add in a decent emergency fund and you should be well covered.

Death Of A Loved One Without Enough Life Insurance

If medical debt wasn’t bad enough, you can get into even worse financial trouble should someone in your family pass away.

In addition to dealing with the final arrangements of your family member, you’ll now have to learn how to live on less. A big chunk of income could have disappeared and you’ll still have the same bills and debt to pay off.

The best way to prevent going further into debt in this situation going forward is to make sure that you have enough life insurance so that your financial life won’t be a struggle if something should happen to your loved ones.


Divorce is another nasty debt inducing event many people face. Splitting up from your significant other can get nasty in a hurry and can leave you with more debt than you can handle on just your income alone.

You could have been forced to take out a larger mortgage to pay you ex-spouse their half of the equity in your home. You could have been burdened with half of the credit card debt that you didn’t even know existed.

Regardless of how it happened, it is in the past. Just make smarter decisions going forward and make sure your next marriage, if you remarry, is with someone you are a better fit with in both finances and personality.

Job Loss or Extended Unemployment

Preparation is key for avoiding financial speed bumps. Most people I personally know aren’t prepared for one of the biggest financial speed bumps you can face, the loss of a job.

Unless you get a new job quickly, you’ll be burning through your cash reserves and racking up the debt very quickly after your last paycheck hits your bank account.

Few people have an emergency fund large enough to last through the difficult times of an extended unemployment spell. The best way to prevent going into debt in the event of a job loss is to have a fully stocked emergency fund of at least six months worth of expenses.

Failure Of A Business

The failure of a business is much like a job loss because you’ll no longer have an income to support yourself, but in some ways it can be much worse.

Many people throw every last penny they have trying to save a failing business and that normally includes maxing out the credit cards in a last ditch effort.

To avoid this horrible outcome, try to take a step back and evaluate your business objectively. Hopefully you’ll be able to see the writing on the wall before you incur massive amounts of debt trying to stop a sinking ship.

Accidents or Acts of God (Hurricanes, House Fires, etc)

Accidents or acts of God can be financially disastrous. Whether you’re in a car accident, are victim of a burglary, house fire, flood or hurricane, these types of events can set you back thousands of dollars easily.

If you didn’t have the proper insurance or money in the bank you might have to go into massive debt to get your life back on track.

Make sure you’re properly insured for the property you own and that you have enough cash to cover any deductibles on these policies if you want to avoid going into debt because of these events.

Short or Long Term Disability

A disability, whether caused by an accident or an illness, can either be a short term or a life long problem for your finances.

If you’re unable to work and didn’t have short or long term disability insurance your financial life could be ruined by the fact that you can no longer earn money for your family.

In the short term you could end up in a ton of debt while you’re waiting to heal before going back to your job. If you end up being disabled for a longer period of time you may never be able to recover financially.

Once again, insurance and a well stocked emergency fund can prevent the financial part of the disaster of becoming disabled. We’ve dealt with a couple of short term disability stints and were very glad Tori had short term disability insurance through her employer.

Prepare For These Situations To Avoid Debt

As you can see, there are many times when an unexpected life event can throw you tens of thousands of dollars into debt if you aren’t well prepared with proper insurance and a well stocked emergency fund.

Do your best to prepare for the worst case scenarios. By doing so, you will have eliminated many of the threats to your debt pay off journey.

The next step, which we’ll cover next Monday, is taking a look at money sinkholes and how they can put you in the same horrible debt that these life changing debt events can.

Once you understand all of the ways how you’ve gotten yourself into debt you can protect yourself against it happening again. You’ll be well along your way to paying off your consumer debt once and for all!

Have you experienced any of these awful life changing debt events? If so, did you end up in debt or were you well covered by insurance and an emergency fund?