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If you have been searching around the internet about debt payoff techniques then most likely you have come across Dave Ramsey Debt Snowball technique.
And you might be wondering who is Dave Ramsey?
Dave Ramsey is a well-known finance guru who helps people like you and me achieve financial freedom. His principles came from his own experiences in the financial world. His inspiring life story includes the time when he was very wealthy, to the time when he became broke and how he worked his way back up again.
Dave Ramsey recommended the Debt Snowball technique to his followers as the preferred way to manage debt. As a result, it became a very popular way to pay off debts.
In this post, you will learn more about the Dave Ramsey debt snowball technique and you will be able to decide if this technique is the right debt management for you.
This post includes the benefits of the debt snowball as well as the step by step guide on how to use this technique.
So without further ado, let’s dive in.
What is Debt Snowball?
Debt Snowball is a debt management method in which you list down all your debts and start paying off the debt with the smallest balance first, regardless of interest rates.
For example, if you have three debts in which Debt A is $2500, Debt B is $3000 and Debt C is $500. You will pay off Debt C first, followed by Debt A and then Debt B.
Who is it for?
The Dave Ramsey debt snowball technique is for you if you are someone who needs small wins along the way to stay motivated. If you see that you were able to pay off one debt, then most likely you will be pumped up to tackle your next debt.
On the other hand, if you are someone who wants to save on interests in the long term, this technique is not for you. You are better off using the Debt Avalanche technique, in which you pay down the debt with the highest interest first.
However, the idea behind the debt snowball technique is that if you will stay motivated to pay off your debt then you can still save on interests because you will pay off your debts in a shorter length of time.
Benefits of Debt Snowball
One of the reasons why the debt snowball method is very popular is because it works. Those who were successful with it shared their experiences with their friends.
So what are the benefits of using the debt snowball method?
#1 Keeps your Motivated
If you knocked down one of your debt, you would feel great. As a result, you will be inspired to tackle your next debt.
#2 Pays off your Debt Faster
And because you are motivated to pay off your debts, you will be able to pay off your debt faster.
#3 Keeps you Out of Debt
When all your debts are paid off, you will recall the hard work that you put into it and this thought will keep you out of debt for good.
How to use the Debt Snowball Technique?
Surprisingly, the debt snowball technique is not hard to set up. Here is the step by step guide to starting your debt snowball.
#1 List Down All Your Debts
Gather all your bank statements and list down all the debts that you have including the name of the company, balance and the minimum payment.
List down everything except your mortgage. Your list may include borrowed money from friends/family, a loan from a bank, medical debt, credit cards, and others.
#2 Rank Your Debts
Rank your debts starting from the smallest to the largest. Your debt #1 will be the debt with the lowest balance.
#3 Pay the Minimum
Every month, you will pay the minimum of all the debts you have including debt #1.
#4 Pay Extra
Add all extra money to your payment for debt #1. Payment to debt #1 will be minimum payment plus extra payment.
The more extra payment you put on debt #1, the faster it will be paid off.
#5 Roll Payment
Once debt #1 is paid off, move on to debt #2. Payment to debt #2 will include minimum payment to debt #1, minimum payment to debt #2 and the extra payment.
Once debt #2 is paid off, move on to debt #3. Payment to debt #3 will include minimum payment of debt #1, minimum payment to debt #2, minimum payment to debt #3 and the extra payment.
As you move along to your next debt, your snowball effect gets bigger and you pay off your debts faster.
You can use this FREE Debt Snowball Worksheet to track your progress.
How to Make the Dave Ramsey Debt Snowball Successful?
For the debt snowball technique to work, you need to work on making extra payments. The extra payments will help you achieve your goals faster.
You can have additional payments by doing the following:
#1 Have A Budget
If you don’t have a budget yet, check out How To Start a Monthly Budget.
Having a budget will make you aware of where your money is going. The budget will help you identify what areas you are spending the most.
#2 Cut Your Expenses
Once you have a budget, you can start trimming the budget amount on areas that you can live without. The most common area where people spend most of their money on is restaurants.
Evaluate all your expenses and eliminate those that are not necessary for the time being. Simple sacrifices you can do now will all be worth it.
#3 Work Extra Hours
If your company offers overtime, take advantage of it. If your company does not offer overtime, get a second job. Or, you can even pick up a side hustle that can help you earn some extra money.
#4 Stick To Your Budget
The most important way to make the debt snowball successful is to stick to your budget. If you stick to your budget, then it will be less likely that you will not spend your extra payment.
If you want to learn more ways to save money, check out 101 Smartest Ways to Save Money.
If one large monthly chunk of debt payment is hard on your budget, consider the debt snowflake.
The Debt Snowflake is a variation of the Debt Snowball, in which you make small but frequent payments to the debt you are paying off first.
There you have it!
The Dave Ramsey Debt Snowball technique is one of the most popular ways of tackling debt that works. It makes you stay motivated to tackle your debt one after the other. As a result, you will be paying off your debts faster.
Although it is proven to work, evaluate your situation carefully first to make sure it is the right method for you.
What debt payment method are you using?