Becoming Debt Free: How to Snowball Your Way to Financial Freedom
Imagine a life with no car payments, no student loans, no keeping track of all the credit cards you owe. What would you do with all that extra cash? How would you feel becoming debt free?
Debt is considered normal in this culture. You can’t go to college without student loans, no one buys their car in full and every family has at least 3 credit cards. But, debt is the reason so many families struggle to improve their finances.
Debt is the most difficult hurdle to you must overcome to really begin to live the life you want.
I thought debt was normal too. I graduated college with student loans, moved out, purchased new furniture on a home store credit card, and financed a brand new vehicle. Over the course of 3 years, I became worse at managing my money.
I made an attempt to pay down my credit cards. Instead of making minimum payments, I added a little extra on each one. The progress I made was snail-like and I was nowhere near becoming debt free. Somehow, I managed to pay off one credit card. That left me with two credit cards, a car loan, and student loans that still needed to be paid off.
If I would have continued at the rate I was going, it would have taken nearly 11 years to become debt free.
Does this sound familiar? Are you drowning in debt and can’t seem to find any way out?
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You can be on your way to becoming debt free too
By using this method, I have paid off all my debt (excluding mortgage) in just 3 years!
Introducing, the Debt Snowball. The method was introduced to me by Dave Ramsey, a financial advisor and “get out of debt” guru. After reading his book The Total Money Makeover, I was immediately on board with his plan to becoming debt free.
If you’ve been following this series, you know how I got into debt and how I’m getting out by using the baby steps outlined in Dave Ramsey’s book.
If you are new to this blog, don’t forget to catch up on my get out of debt series and follow my journey.
Important things to do before snowballing your debt
Before getting started on your debt snowball, there are a few important things to do.
First, stop all unnecessary spending. Give up those packs of gum at the gas station. Eat-in more often. There are so many ways you are wasting your money. So stop wasting your money and start putting it to good use.
Second, make sure you are current on all of your debts and payments. If you are behind, catch up. If you need help finding money, take a look at different ways that you are wasting your money. You’d be surprised at how much the little things add up over time.
Here’s a tip: negotiate with your lenders and utility companies for lower rates. You might be able to decrease your electric bill by switching to budget billing or enrolling in automatic payments. Or, that cable company just might want to keep you and will lower their rate by $10.
Third, complete baby step # 1 by saving an emergency fund, usually $1000. This is extremely important because if something happens while you are snowballing, like your tire blew out, you’ll have no money to pay for the new tire. This means that you’ll probably charge that credit card and start all over again. It becomes a never ending cycle. So get that emergency fund completed.
Now you are ready for baby step #2.
Baby Step #2: The Debt Snowball
Imagine if you start rolling a small snowball, it gets bigger and bigger as you roll. Well, that’s how your payments toward debt will be, larger and larger. This method truly works because it is based on small victories. Once you pay off that first credit card, its rewarding and it feels great. It fuels motivation to keep going. You’ll need that motivation, that drive.
I’m a super visual person. Therefore, I need to write things down and see it in action. So, I’ve created a few templates to make it simple for you. Simply download the templates, follow the steps below, write in them. Keep your snowball on your fridge so that every morning you see your progress to becoming debt free.
- List all of your debts- list every single one of them, except your mortgage. Debts include car loans, student loans, credit cards, department store cards, automotive credit cards, personal loans, medical loans.
- Find out what you owe on each debt. Make calls, go online, access your account. You need to know how much debt you owe.
- List all of your payments that you are currently making beside each debt.
- List all of the minimum payments required. Try to negotiate a smaller minimum payment with each lender or debt. This will give you more money to pay off the lowest balance quickly.
- Record the difference.
- Change all of your monthly payments to your new minimum payment except your lowest debt.
- Apply ALL of the extra money to the lowest debt until it is paid off.
- Once the lowest debt is paid off, add ALL of that money your were paying to the next largest debt until it is paid off.
Continue this process and throw in any extra cash you can at it until you are debt free!
Click below to download the templates FREE.
What are your struggles when it comes to getting out of debt? What is stopping you from making progress? Comment below.