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Anywho… I mentioned in my last post I was going to talk about debt snowball and how Asa and I used it to pay off $20,000! If you haven't had a chance to go check it out you definitely should because I give away the tool we used for free!
The concept of debt snowball isn't complicated at all! It's exactly what it says it is! It's similar to when you make a snow man. You have to start with a little bit of snow and then keep rolling it until the snowball gets bigger and bigger. Well, just take that idea and apply it towards debt. Simple… right?Well, if you are human and happen to let marketing get the best of you, (much like me) then you most likely have quite a bit of debt. To name just a few you might have a credit card of some sort, car debt, medical bills, and a house loan.
So, say Sarah, who is 29 has $107,000 in debt from all the different accounts… that may seem like a lot, but honestly on average, for her age bracket, the amount of debt she has is very normal. Take a look at the picture above and see the amounts that are in each area. She tried to be really smart about the debt that she has collected, but like the old adage goes… "it all adds up…"
If you are like Sarah but are not in her age bracket here is the info I found on different age brackets and the average amount of debt each age group has:So, how do we unleash the power of this debt snowball that I talk about? Well, to make this very simple I will give you 4 steps to follow, (that's less than 5 fingeroos friends… let that thumb take a break 🙂 ) so that YOU can also pay off your debt.
- Write out all your debt from smallest to largest.
- Here is a free debt snowball excel sheet I found online. I went through a couple and this one seemed the best. Here is thehow to and excel sheet.
- In your budget (click here for a free customized spreadsheet which has this step done for you), create an amount that you pay monthly towards your debt. Name this amount "debt snowball."
- Pay off the smallest amount of debt first
- Most people think, "let's pay off the largest amount of debt so we don't have to look at it anymore." Well, don't do this. 🙂 Say you are starting to train for a 5k or you're trying to lose weight. Do you just wake up and start running the whole 3.1 miles? Do you just wake up and you are magically 10-30 pounds thinner? Nope! You have to start with little steps first.
- Example: So Sarah has been putting $200 (debt snowball) extra each month towards her medical bills on top of the $50 (monthly bill) she already pays towards them. Therefore, she is putting $250 towards her medical bills for the month. When she pays off the $2,000 in medical bills she will move on to her credit card balance.
- Once you've paid off the smallest debt account, put the debt snowball amount of money AND the money you put towards your bill each month towards the next debt amount.
- Now, for her credit card. For the entire month, Sarah will put the $250 she was paying towards her medical bills on top of the $70 she pays monthly. Now Sarah is putting $320 towards her credit card bill monthly instead of the lousy $70. Sarah then continues this method with her other bills until they are all paid off. Here is a visual example:
- I have put in all of Sarah's debt into this calculator. Super nifty!
- Debt Snowball Calculator (once you click on this link click it once more. It will take you to the pdf)
- Using the debt snowball method is so great because you get to pay off your debt so much quicker! Here is a comparison of when the debts would be paid off:
That is 1.25 years difference! That's an extra $21,600 that you would be putting towards debt! Just think what you could do with that instead of paying off debt…. can any one say, "Retirement?!"
So, this sounds simple, right? Well… saying is always easier than doing. I'm not going to lie to you and say that it will be easy peasy lemon squeezy, but I can tell you that it will be worth it. It'll be worth it to your daughter or son when they need a college fund. It'll be worth it to be able to travel with your hunny. It'll be worth it to help others out around you when they can't fend for themselves… all I'm sayin' is… it'll be worth it.
I'm always here if you need help figuring out what is next in your budget journey. If you don't know where to start, go to my store and get your free download of a customizable spreadsheet. If it's a little too overwhelming for you I'm always available for a consultation as well. I look forward to hearing how your debt free journeys are going. Feel free to share your insights in the comment section. Thanks for reading friends!