How to implement a debt snowball strategy

Financial gurus like Dave Ramsey suggest the best way to get out of debt is to implement a debt snowball strategy.  The rationale is that you pay the smallest debt off first in order to gain “momentum” to pay off the larger debts, regardless of interest rates.  This way, you’ll pay more interest in the long run but you’ll see results more quickly in the short term.  Here’s how it works.

Debt Snowball Plan

1. Start by paying only the minimum payments on your bills so you can get focused.
2. Save the extra cash you would have applied to your debts until you have accumulated a $1,000 emergency cash fund.
3. List all of your debts in order, with the smallest balance on top and the largest balance on the bottom.
4. Ignore interest rates and terms unless you have two debts with the same balance, then list the higher rate debt first.
5. Apply all your extra money each month towards the smallest debt.
6. Once the smallest debt is paid, apply all the extra money you have towards the second smallest debt.
7. Keep repeating, increasing your snowball as each debt is eliminated.
8. Proponents of the debt snowball strategy say you’ll get quick feedback to help you stick with the plan.

You attack the smallest debt first while making just the minimum payments on everything else.  Keep your attention focused on eliminating your debt.  Every time you pay off a smaller debt, make sure to apply that money to the next debt.  While this is not the fastest mathematical way to eliminate your debt, it is a good method to try.  After all, any plan is better than no plan.

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