Discover Debt Freedom!

If you’re ready to take serious action and get rid of your debt once and for all, one of the best do-it-yourself methods is something called the “Snowball method”. As you follow this method, your payments to your creditors will gradually get bigger, like a snowball rolling down a hill, and you don’t ever have to increase your income to do it!

While most get-out-of-debt plans have you start paying money on your highest interest accounts first, based on the theory that you don’t want to pay them all of that interest- the snowball method is a little out of the ordinary as it doesn’t even pay much attention to your interest rates.

What you need to do first is make a list of all of your credit card accounts and loans, utilities, and living expenses. Anything that you pay on each month, make sure you put it on your list. Don’t put them in any particular order, just make sure you write everything down. Include the account name, the total amount you owe, and the amount of minimum payment required each month.

You also need to know how much income you have each month. You want to know your after-tax, after-insurance, after-all-deductions amount. The actual cash you have access to each month! From your income, go ahead and subtract your living expenses (rent, mortgage, electric, heat, etc). What is left? This amount is what you have available for paying credit cards and loans.

Re-organize your expense list with your credit cards and loans. This time, put them in order with the account you owe the LEAST at the top, and write them in ascending order like this:

You are going to pay the minimum payment on each of your accounts except for the first account on the list. On that account, you’re going to send as much as you have, every month, until it is completely paid off. So if after paying your living expenses and minimum payments on the other accounts you have $70 left, that is how much you will send every month until that account is paid off.

When the first account is paid off, you will add that $70 to the account that is second on the list. So if the minimum payment on account 2 was $20, now you will be sending them $90 a month, every month, until it’s completely paid off.

When that account has been paid, you now have $90 a month that can be added to the minimum payment of account 3. See how your payment amount is getting larger, like a snowball rolling down the hill? You didn’t need a raise or lottery winnings to make your payments bigger, you just needed discipline and a plan! Your accounts will get paid off very quickly if you stick to this plan, and avoid creating new debt as you’re paying down on your exiting debt.

Another important thing is to stay motivated. Personal finance is just about behavior as it is math. Keep yourself motivated by reading financial books, watching money news, and encouraging yourself.