You may or may not have heard of Dave Ramsey’s Debt Snowball, but if you have, believe me, you’re going to want to hear how we managed to make the snowball even faster. In just 6 months, we were able to pay off over $6,000 worth of debt! If you had told me 5 years ago that I would be able to pay off an average of $1,000 per month of debt I would have told you you were crazy. We were living paycheck to paycheck. There was no way. Here’s the breakdown of how we made it happen and how you can too.
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Before our family started paying off debt, I am so thankful I learned how to first prep myself so that debt payoff would be easier and less stressful.
Here are the steps I recommend to get you started:
One thing most of us do while we are getting ourselves in debt is to completely ignore our bank accounts because we know we won’t like what we see.
You know what they say, you can’t get to your destination if you don’t know your starting point.
As painful as it can be, make sure you face your finances head on before jumping into debt payoff.
Following the Dave Ramsey steps, the “rules” were technically not to continue investing while paying off our debt. I am so thankful Tom insisted on putting his foot down because as I expanded my financial knowledge I understand how powerful compounding interest can be. (AKA our money makes more money.) Check the FSL Book Store to get my favorite financial book recommendations.
Another mistake I wish we had been smarter about was saving the recommended $1,000 and that’s it.
Throughout our debt payoff process we continually ran into financial hardships that would drain our emergency fund. Because our savings would dwindle, we were forced to constantly re-build it. Had we chose to set aside a $100 per month to keep beefing up our savings, we might not have had as many set backs.
Another good idea (always) is to open a savings account that is separate from your current bank account. The online Savings Builder account with CITBank is perfect because they have high-yield accounts that you can open for as little as $100 per month. Open a Savings Builder account to save $100 per month.
When our family started the Debt Snowball method, no one mentioned to us that a good idea to help save money and speed up the debt payoff process is to get a lower interest rate especially on things like credit cards.
I wish we had known about this as you can easily find scripts online to help negotiate interest rates.
Negotiations are definitely a smart tactic, but unfortunately they don’t always work. That’s why it can be good to have a backup plan.
If you have a significant amount of debt to pay off like we did, (we had a $12K credit card bill on top of car loans, student loans etc), it might be worth looking into taking out a loan with a lower interest rate or consolidation. Click here to get an estimate with LendingTree.
By taking out a loan to pay off our credit card we were able to go from a 25% interest rate to an 11%! That was a huge load of my mind because it felt like we were actually able to make a dent in that debt while we focused on paying off our other debts.
Ok, that was a lot of pre-game info, but I want to make sure you have all the information before we go on.
Here’s the quick breakdown of how the Debt Snowball works.
The first step in starting the Debt Snowball is finding an additional $200 per month to put toward debt. A lot of people believe that finding extra money means working more. In reality, there is a good chance you already have $200 hiding in your budget.
Going through your budget and doing a spending inventory can help you get clear about where you are currently spending your money. After you’ve done that, you can more easily decide areas where you could cut back or reduce spending.
One of the best and fastest ways to get more money in your budget is by cutting those expenses that you pay every month. Go through your budget and find ways that you can reduce or eliminate the expenses that you pay for every single month. Top areas to cut:
I started a few different side hustles in order to help accelerate our debt payoff. These are jobs I was able to do from home while raising kids and homeschooling! 10 Things I Did to Make Money From Home.
Another thing we did to make extra money to help pay off debt quicker was to sell a lot of our items. Between downsizing our house and paying off debt our family of 5 easily eliminated half of our possession which relieved so much stress and helped us make some extra cash.
If you love the idea of learning how to flip thrift store items or make money from your clutter, our friend, Amanda has an amazing course called Trash to Cash that helps you learn how to do this.
Amanda was even able to travel the US for nearly an entire year solely of flipping while on the road! How cool is that? Learn how to sell your clutter.
Grab the Debt Snowball Printout here to get started and follow along, or you can snag more debt printouts in The Budget Bundle if you feel like you need a little more help with organization and tracking!
Once you have your $200 extra per month, the Debt Snowball gets pretty simple. I recommend downloading my Debt Snowball printable to help you keep track of your debt payoff and to get an idea of how quickly you can pay off your debt.
As you can see below, our $300 credit card was our smallest debt.
Our minimum monthly payment was $30.
By adding the additional $200 to that $30 we were able to put $230 toward our smallest debt of $300.
*Remember, you can always put more money toward debt if you are able to! This will help you pay off debt faster and save you from additional interest!
As you can see, after we finished paying off our remaining $70 from our credit card, we took the remaining $160 and applied it to our next smallest debt.
Once we paid off our smallest debt, we were able to take the full $230 that we applied toward it and begin putting that money toward our next smallest debt.
Because our minimum payment for our next smallest debt was $100, that gave us a grand total of $330 to apply toward that debt. Once that debt was paid off, we had $330 to begin applying to the next debt in line.
Now we had racked up a huge debt snowball and it just rolled faster and faster.
By the time we got to our biggest debt it only took a little over a month to completely polish off that remaining balance.
When we were finished paying off debt in 6 months, we still managed to have an additional $210 leftover.
While we were able to get out of debt $6,000 of debt in 6 months, this isn’t going to be the case for everyone. Depending on the amount of debt you have, your income, and your motivation, debt payoff will look differently for everyone.
Do not fall back into those nasty habits that got you into debt in the first place! This can be so easy to do as money management is largely a mindset issue!
Be sure to check out the FSL Book Store to get my favorite financial book recommendations so you can learn how to use money as a tool to support your financial freedom and get you out of the paycheck to paycheck mindset for good!