How to Create a Debt Snowball Plan

Author: Kris Bickell

Author: Kris Bickell

A debt snowball plan represents a new way of thinking about debts and how they should be paid off. If you're making minimum payments on a number of debts and putting extra towards your balances when you can, but still feel like you aren't getting anywhere, a debt snowball plan may be right for you. The primary benefit of this debt repayment strategy is that it allows individuals to see real progress as debts disappear, which helps people stay motivated and stick to the repayment plan. This plan will only work if you are able to make the minimum payments on all of your debts and come up with at least a little extra each month, so be honest with yourself about your situation. Here's how to create and execute your own debt snowball plan. #1 Take stock: Figure out how much you owe and how many debts you have. Credit cards, car loans, and other consumer debt should be tallied. Do not include your mortgage. #2 Arrange your debts in order from lowest to highest: You're only looking at what you owe on each account. Interest rates are not a factor. #3 Figure out how much extra you can afford in addition to your minimum payments, and then put that entire amount on your smallest debt: Let's say you have $1000/month to devote to debt repayment. If your minimum payments add up to $800, that leaves $200 to put towards your smallest debt. Keep doing that until it's completely paid. #4 Once your smallest balance is paid, apply the minimum payment and the extra to your next lowest debt. If the minimum payment on your smallest debt was $50, that gives you $250 to pay down your next largest debt. That amount will continue to grow as debts are eliminated. #5 Repeat until all debts are gone!About the Author:

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