“I-I-I-I’m Debt Fre-e-e-e-e-e-e-e!”

I was never so excited to utter those words than I was on March 5, 2015. I can tell you it was a long five-year journey with many twists and turns. But with persistence and focus, I was able to achieve a financial milestone that many people only dream of.

The truth is that this dream IS achievable – and I want the same for you!

I want you to have the same incredible sense of peace and freedom that I have found through being debt free and knowing that you don’t have debt payments weighing you down or holding you back.

So how did I manage to pay off $56,000 of debt??

Well, in the past, I had always tried attacking my debt by trying to pay the one with the highest interest rate. I mean, I’m an accountant by trade so logically and mathematically, it seemed like the most sensible approach to paying off debt, right? It would save me the most amount of interest overall, making the total payoff the lowest.

However, I didn’t find that I stuck to that approach very long. The truth is that a lot of my higher interest rate debt was some of the highest debt balances that I was trying to attack. So even though I was chipping away at this more expensive debt and, in theory, saving on interest, I didn’t feel like I was making any progress. There were no real tangible wins for me.

Enter the Debt Snowball.

I was introduced to the Debt Snowball when I took Financial Peace University – Dave Ramsey’s personal finance course. At first, the overall method seemed backwards to me. Instead of focusing on the debt with the highest interest rate first, you focused on the debt with the smallest balance first. Of course, my accountant mind was thinking, how the heck is this going to be better than paying off the highest interest rate first? It doesn’t make any financial sense!

Yeah – well, charging $3,000 on a credit for a dating matchmaking service doesn’t make a lot of financial sense either (Yup – been there, done that) so maybe I should be open to this new approach.

So how does this Debt Snowball thing work and what makes it so successful among people who have become debt free?

The whole idea behind the Debt Snowball is pure psychology. We as humans become more motivated and encouraged when we have small quick wins. Think about when you lose the first few pounds when you start a new eating plan. That quick first initial weight loss keeps you motivated to continue the new eating plan, right? The same thing works with the Debt Snowball.

By focusing all your energy on the smallest debt, the idea is that if you knock it out quickly, it gives you that first win to continue on to the next smallest debt. It sends a signal to your brain that “hey, this is actually possible!”. Getting the quick wins early in the debt payoff game builds your confidence in paying off all your debt that will get you through the much longer stretches on the bigger debts that will be attacked later in your journey.

So, what are the steps that are needed to set up the Debt Snowball for success?

  1. Gather all your debt balances. This includes credit cards, student loans, car loans, personal loans, family loans, line of credit, and IRS debt. You may have to search your email or log into your accounts to find the most current balance. This is not the minimum payment due but the actual balance of the loan. If you own a home and have a mortgage, keep that balance out of the Debt Snowball. While it may be a debt that you want to pay off eventually, attacking your consumer debt balances and paying those off will give you much better space in your budget to determine your investing and house payoff plans. So, for now, keep that loan out of the Debt Snowball
  2. Once you have your debt balances gathered, make a list of those balances from the smallest balance to the largest balance. When I listed my balances out, I did NOT lump debt balances together by category. For instance, if you have three credit cards, list those balances out separately. If you have several student loans, list those out individually. Keeping each debt separate will allow you to have laser focus on paying each one off as they come through the Debt Snowball. One exception: put the IRS debt first. IRS debt is one of the few debts that can be garnished on your wages and it’s better to get them off your back first!
  3. Each month, pay the minimum amount due for each debt and any leftover money you have in your budget, apply those funds to your smallest debt. For example, let’s say that your smallest debt has a minimum payment of $50. When you create your monthly budget and pay for all of your expenses and all the minimums on your other debt, you discover you have an extra $100 left to assign. You would take the $50 minimum payment plus the extra $100 and pay $150 towards your smallest debt. Makes sense? Every month, you continue to pay extra on the smallest debt until the debt is paid off.
  4. Once you have completely paid off the smallest debt, you begin paying off the next smallest debt with the minimum payment you have been paying against it plus all of the money you were paying in the past month against the now-paid off debt. Using our previous debt example, you would now be paying the minimum on your next smallest debt plus the $150 from the previous smallest debt you were paying on. Thus, the Debt Snowball starts to roll faster, and you are able to pay this next smallest debt even faster.
  5. Continue the Debt Snowball until you have paid off all your consumer debt! This step may take a while to achieve. However, throughout this step, you will continue to find money that you can throw against the snowball. Sell some clothes or books you no longer want or need. Cut back on your food budget. Start a side hustle, like walking dogs or offering child care. It’s amazing how much money you will find to throw against your Debt Snowball as you continue through the process.

Getting out of debt is not easy but it’s also not impossible. All it takes is a little bit of focus and determination. The biggest thing to remember is that the debt isn’t going to be repaid overnight. But using the Debt Snowball will give you some quick, much-needed wins to give you the confidence and motivation to make debt freedom a reality.

What are you waiting for? Go start making your debt-free dream come true!