January is right around the corner, and we want to start the year off disciplined and ready to pay off debt. This month’s message is to employ you to make a conscious effort to become debt free. We’ve decided to break down the debt snowball payment plan and how effective it is to pay off debt over time without going broke. You can create your own plan using the illustrations below. To save or download the spreadsheet used to make the calculations below, click here: Debt Snowball Plan Worksheet. You can edit the spreadsheet and enter your debt and numbers to match your personal plan. Please save the spreadsheet first before making changes.
To create a debt snowball payment plan, we will use the “Debt Snowball Method” — a popular method for paying down debt quickly. In this strategy, you start by paying off the debt with the smallest balance first while making minimum payments on all other debts. Once the smallest debt is paid off, you apply that payment to the next smallest debt. This way, you gradually “snowball” your payment amounts as each debt is cleared.
Step 1: List of Debts
Here is a summary of the debts, sorted by balance from smallest to largest:
| Debt | Balance | Minimum Payment |
|---|---|---|
| Southwest Credit Card | $185.00 | $40 |
| Care Credit | $350.00 | $100 |
| Chase Amazon | $1,411.00 | $42 |
| Discover Card | $1,605.00 | $36.50 |
| SBA Loan | $1,539.00 | $50 |
| PayPal | $1,824.00 | $64 |
| Capital One | $1,995.00 | $44 |
| Orthodontist | $5,350.00 | $250 |
| Mutual Loan | $4,373.00 | $215 |
| Navy Federal | $6,727.00 | $172 |
| Toyota | $16,800.00 | $502 |
In the Debt Snowball Method, we’ll start by paying extra towards Southwest Credit Card, the debt with the smallest balance, while making minimum payments on the other debts.
Step 2: Calculate Extra Payment
Assuming you can commit an extra $200 per month toward your debt repayment plan, we’ll add this amount to the minimum payment on the smallest debt. You can work extra hours, pick up a side hustle or figure out a way to cut back and use the income you already have.
So, your first debt (Southwest Credit Card) payment will be the minimum payment plus the additional $200 snowball amount.
Step 3: Monthly Payment Plan Breakdown
Let’s go through each month to see how the snowball payment grows as each debt is paid off. The plan below assumes a simplified approach with fixed payments, where any additional interest or fees are not taken into account (please keep in mind that interest rates will cause balances to fluctuate monthly, so this is an approximate guide).
We’ll start with the smallest debt and move down the list, adding the payment amount from the paid-off debt to the next one in line.
Debt Snowball Payment Plan
Monthly Snowball Payment Start: $200
Month 1 – Pay off Southwest Credit Card ($185):
-
- Southwest Credit Card: $40 (minimum) + $200 (extra) = $240 total
- Amount paid: $185 (balance paid off)
- Remaining snowball: $240 – $185 = $55
- Total Monthly Payment: $240 (towards Southwest)
- Pay the minimum payment on your other cards
Next Month: Add $240 snowball to the next debt (Care Credit).
Month 2 – Care Credit ($350):
-
- Care Credit: $100 (minimum) + $240 (snowball) = $340 total
- Amount paid: $350 (balance paid off, as the remaining $10 from this month’s payment is unallocated)
- Total Monthly Payment: $340 (towards Care Credit)
- Pay the minimum payment on your other cards
Next Month: Add $340 to the next debt (Chase Amazon).
Month 3 – Chase Amazon ($1,411):
-
- Chase Amazon: $42 (minimum) + $340 (snowball) = $382 total
- Amount paid: $382
- New Balance: $1,029
- Pay the minimum payment on the other cards
Month 4 – Continue paying Chase Amazon ($1,029):
-
- Chase Amazon: $42 (minimum) + $340 (snowball) = $382 total
- Amount paid: $382
- New Balance: $647
- Pay the minimum payments on the other cards
Month 5 – Continue paying Chase Amazon ($647):
-
- Chase Amazon: $42 (minimum) + $340 (snowball) = $382 total
- Amount paid: $382
- New Balance: $265
- Pay the minimum payment on the other cards
Month 6 – Finish paying Chase Amazon ($265):
-
- Chase Amazon: $42 (minimum) + $340 (snowball) = $382 total
- Amount paid: $265 (balance paid off)
- Remaining snowball: $382 – $265 = $117
- Total Monthly Payment: $382 (towards Chase Amazon)
- Pay minimum payments on other cards
Next Month: Add $382 to the next debt (SBA Loan).
Month 7 – SBA Loan ($1,539):
-
- SBA Loan: $50 (minimum) + $382 (snowball) = $432 total
- Amount paid: $432
- New Balance: $1,107
- Pay minimum payments on other cards
Month 8 – Continue paying SBA Loan ($1,107):
-
- SBA Loan: $50 (minimum) + $382 (snowball) = $432 total
- Amount paid: $432
- New Balance: $675
- Pay minimum payments on other cards
Month 9 – Continue paying SBA Loan ($675):
-
- SBA Loan: $50 (minimum) + $382 (snowball) = $432 total
- Amount paid: $432
- New Balance: $243
- Pay minimum payments on other cards
Month 10 – Finish paying SBA Loan ($243):
-
- SBA Loan: $50 (minimum) + $382 (snowball) = $432 total
- Amount paid: $243 (balance paid off)
- Remaining snowball: $432 – $243 = $189
- Total Monthly Payment: $432 (towards SBA Loan)
- Pay minimum payments on other cards
Next Month: Add $432 to the next debt (Discover Card).
Month 11 – Discover Card ($1,605):
-
- Discover Card: $36.50 (minimum) + $432 (snowball) = $468.50 total
- Amount paid: $468.50
- New Balance: $1,136.50
- Pay minimum payments on other cards
Continue this process with each remaining debt:
- Each time you pay off a debt, roll the full amount you were paying towards that debt into the payment for the next smallest debt.
- For larger debts (like the Orthodontist, Mutual Loan, Navy Federal, and Toyota), continue with monthly payments, applying the snowball as it grows with each debt paid off.
After paying off SBA Loan, we have a snowball payment of $432.
Month 11 – Discover Card ($1,605):
-
- Discover Card: $36.50 (minimum) + $432 (snowball) = $468.50 total
- Amount paid: $468.50
- New Balance: $1,136.50
Month 12 – Continue paying Discover Card ($1,136.50):
-
- Discover Card: $36.50 (minimum) + $432 (snowball) = $468.50 total
- Amount paid: $468.50
- New Balance: $668
Month 13 – Continue paying Discover Card ($668):
-
- Discover Card: $36.50 (minimum) + $432 (snowball) = $468.50 total
- Amount paid: $468.50
- New Balance: $199.50
Month 14 – Finish paying Discover Card ($199.50):
-
- Discover Card: $36.50 (minimum) + $432 (snowball) = $468.50 total
- Amount paid: $199.50 (balance paid off)
- Remaining snowball: $468.50 – $199.50 = $269
- Total Monthly Payment: $468.50 (towards Discover Card)
Next Month: Add $468.50 to the next debt (PayPal).
Month 15 – PayPal ($1,824):
-
- PayPal: $64 (minimum) + $468.50 (snowball) = $532.50 total
- Amount paid: $532.50
- New Balance: $1,291.50
Month 16 – Continue paying PayPal ($1,291.50):
-
- PayPal: $64 (minimum) + $468.50 (snowball) = $532.50 total
- Amount paid: $532.50
- New Balance: $759
Month 17 – Continue paying PayPal ($759):
-
- PayPal: $64 (minimum) + $468.50 (snowball) = $532.50 total
- Amount paid: $532.50
- New Balance: $226.50
Month 18 – Finish paying PayPal ($226.50):
-
- PayPal: $64 (minimum) + $468.50 (snowball) = $532.50 total
- Amount paid: $226.50 (balance paid off)
- Remaining snowball: $532.50 – $226.50 = $306
- Total Monthly Payment: $532.50 (towards PayPal)
Next Month: Add $532.50 to the next debt (Capital One).
Month 19 – Capital One ($1,995):
-
- Capital One: $44 (minimum) + $532.50 (snowball) = $576.50 total
- Amount paid: $576.50
- New Balance: $1,418.50
Month 20 – Continue paying Capital One ($1,418.50):
-
- Capital One: $44 (minimum) + $532.50 (snowball) = $576.50 total
- Amount paid: $576.50
- New Balance: $842
Month 21 – Continue paying Capital One ($842):
-
- Capital One: $44 (minimum) + $532.50 (snowball) = $576.50 total
- Amount paid: $576.50
- New Balance: $265.50
Month 22 – Finish paying Capital One ($265.50):
-
- Capital One: $44 (minimum) + $532.50 (snowball) = $576.50 total
- Amount paid: $265.50 (balance paid off)
- Remaining snowball: $576.50 – $265.50 = $311
- Total Monthly Payment: $576.50 (towards Capital One)
Next Month: Add $576.50 to the next debt (Orthodontist).
Month 23 – Orthodontist ($5,350):
-
- Orthodontist: $250 (minimum) + $576.50 (snowball) = $826.50 total
- Amount paid: $826.50
- New Balance: $4,523.50
Month 23 – Orthodontist ($5,350):
- Orthodontist: $250 (minimum) + $576.50 (snowball) = $826.50 total
- Amount paid: $826.50
- New Balance: $4,523.50
Month 24 – Continue paying Orthodontist ($4,523.50):
- Orthodontist: $250 (minimum) + $576.50 (snowball) = $826.50 total
- Amount paid: $826.50
- New Balance: $3,697
Month 25 – Continue paying Orthodontist ($3,697):
- Orthodontist: $250 (minimum) + $576.50 (snowball) = $826.50 total
- Amount paid: $826.50
- New Balance: $2,870.50
Month 26 – Continue paying Orthodontist ($2,870.50):
- Orthodontist: $250 (minimum) + $576.50 (snowball) = $826.50 total
- Amount paid: $826.50
- New Balance: $2,044
Month 27 – Continue paying Orthodontist ($2,044):
- Orthodontist: $250 (minimum) + $576.50 (snowball) = $826.50 total
- Amount paid: $826.50
- New Balance: $1,217.50
Month 28 – Continue paying Orthodontist ($1,217.50):
- Orthodontist: $250 (minimum) + $576.50 (snowball) = $826.50 total
- Amount paid: $826.50
- New Balance: $391
Month 29 – Finish paying Orthodontist ($391):
- Orthodontist: $250 (minimum) + $576.50 (snowball) = $826.50 total
- Amount paid: $391 (balance paid off)
- Remaining snowball: $826.50 – $391 = $435.50
- Total Monthly Payment: $826.50 (towards Orthodontist)
Next Month: Add $826.50 to the next debt (Mutual Loan).
Month 30 – Mutual Loan ($4,373):
- Mutual Loan: $215 (minimum) + $826.50 (snowball) = $1,041.50 total
- Amount paid: $1,041.50
- New Balance: $3,331.50
Month 31 – Continue paying Mutual Loan ($3,331.50):
- Mutual Loan: $215 (minimum) + $826.50 (snowball) = $1,041.50 total
- Amount paid: $1,041.50
- New Balance: $2,290
Month 32 – Continue paying Mutual Loan ($2,290):
- Mutual Loan: $215 (minimum) + $826.50 (snowball) = $1,041.50 total
- Amount paid: $1,041.50
- New Balance: $1,248.50
Month 33 – Continue paying Mutual Loan ($1,248.50):
- Mutual Loan: $215 (minimum) + $826.50 (snowball) = $1,041.50 total
- Amount paid: $1,041.50
- New Balance: $207
Month 34 – Finish paying Mutual Loan ($207):
- Mutual Loan: $215 (minimum) + $826.50 (snowball) = $1,041.50 total
- Amount paid: $207 (balance paid off)
- Remaining snowball: $1,041.50 – $207 = $834.50
- Total Monthly Payment: $1,041.50 (towards Mutual Loan)
Next Month: Add $1,041.50 to the next debt (Navy Federal).
Month 35 – Navy Federal ($6,727):
- Navy Federal: $172 (minimum) + $1,041.50 (snowball) = $1,213.50 total
- Amount paid: $1,213.50
- New Balance: $5,513.50
Continue this process until Navy Federal and Toyota debts are paid off:
- After paying off Navy Federal, apply the snowball amount to the Toyota debt, accelerating its payoff.
- Let’s continue with the debt snowball plan for the final large debt: the Toyota loan, which has a balance of $16,800 with a minimum payment of $502.
- By this point, the Navy Federal debt has been paid off, and we have accumulated a significant snowball payment amount. Our current snowball amount at this stage is $1,213.50 (which includes the accumulated snowball from all the previous debts).
- Since $1,213.50 is more than the minimum payment of $502 for the Toyota loan, we can use this amount each month to accelerate the payoff significantly.
Month 1 – Toyota Loan ($16,800):
-
- Toyota Loan: $502 (minimum) + $711.50 (snowball extra) = $1,213.50 total payment
- Amount paid: $1,213.50
- New Balance: $16,800 – $1,213.50 = $15,586.50
Month 2 – Continue paying Toyota Loan ($15,586.50):
-
- Toyota Loan: $1,213.50
- Amount paid: $1,213.50
- New Balance: $15,586.50 – $1,213.50 = $14,373
Month 3 – Continue paying Toyota Loan ($14,373):
-
- Toyota Loan: $1,213.50
- Amount paid: $1,213.50
- New Balance: $14,373 – $1,213.50 = $13,159.50
Month 4 – Continue paying Toyota Loan ($13,159.50):
-
- Toyota Loan: $1,213.50
- Amount paid: $1,213.50
- New Balance: $13,159.50 – $1,213.50 = $11,946
Month 5 – Continue paying Toyota Loan ($11,946):
-
- Toyota Loan: $1,213.50
- Amount paid: $1,213.50
- New Balance: $11,946 – $1,213.50 = $10,732.50
Month 6 – Continue paying Toyota Loan ($10,732.50):
-
- Toyota Loan: $1,213.50
- Amount paid: $1,213.50
- New Balance: $10,732.50 – $1,213.50 = $9,519
Month 7 – Continue paying Toyota Loan ($9,519):
-
- Toyota Loan: $1,213.50
- Amount paid: $1,213.50
- New Balance: $9,519 – $1,213.50 = $8,305.50
Month 8 – Continue paying Toyota Loan ($8,305.50):
-
- Toyota Loan: $1,213.50
- Amount paid: $1,213.50
- New Balance: $8,305.50 – $1,213.50 = $7,092
Month 9 – Continue paying Toyota Loan ($7,092):
-
- Toyota Loan: $1,213.50
- Amount paid: $1,213.50
- New Balance: $7,092 – $1,213.50 = $5,878.50
Month 10 – Continue paying Toyota Loan ($5,878.50):
-
- Toyota Loan: $1,213.50
- Amount paid: $1,213.50
- New Balance: $5,878.50 – $1,213.50 = $4,665
Month 11 – Continue paying Toyota Loan ($4,665):
-
- Toyota Loan: $1,213.50
- Amount paid: $1,213.50
- New Balance: $4,665 – $1,213.50 = $3,451.50
Month 12 – Continue paying Toyota Loan ($3,451.50):
-
- Toyota Loan: $1,213.50
- Amount paid: $1,213.50
- New Balance: $3,451.50 – $1,213.50 = $2,238
Month 13 – Continue paying Toyota Loan ($2,238):
-
- Toyota Loan: $1,213.50
- Amount paid: $1,213.50
- New Balance: $2,238 – $1,213.50 = $1,024.50
Month 14 – Finish paying Toyota Loan ($1,024.50):
-
- Toyota Loan: $1,024.50
- Amount paid: $1,024.50 (balance paid off)
- Remaining snowball: None (Toyota loan is paid off)
- Total Monthly Payment: $1,024.50 (final payment)
Summary of the Debt Snowball Plan
Using the debt snowball method, we focused on paying off the smallest debts first, which allowed us to build up momentum as we tackled each debt. By the time we reached the larger debts like Navy Federal and Toyota, our snowball amount had grown significantly, making it easier to pay down the larger balances quickly.
- Initial Debts: Starting with smaller debts like the Southwest Credit Card and Care Credit, we built up a snowball by freeing up the minimum payments and extra payments from each paid-off debt.
- Large Debts: By the time we reached large debts like the Navy Federal and Toyota loans, our monthly payment amount had grown substantially due to the snowball effect, allowing us to make substantial progress each month.
- Final Payoff: The Toyota loan, initially a significant debt, was paid off within 14 months due to the accumulated snowball payment of over $1,200.
- Key Clarification Points
- Why Start with Smallest Debt?
- The debt snowball method is structured to provide quick wins. Paying off smaller debts first helps build motivation and momentum, as you see debts being eliminated one by one.
- How Does the Snowball Increase?
- Each time a debt is paid off, the entire amount you were paying toward that debt (both the minimum payment and any additional amount) gets added to the next debt’s payment. This is how the snowball grows, allowing you to pay off subsequent debts faster.
- Paying off Large Debts Faster:
- By the time you reach larger debts like Navy Federal and Toyota, the snowball amount is significant. This allows you to make larger payments toward these debts each month, reducing the overall payoff time dramatically.
- Final Goal:
- The ultimate goal of the debt snowball is to become completely debt-free. By focusing on one debt at a time and increasing payments as each debt is eliminated, this method makes it possible to clear all debts methodically and efficiently.
Using the debt snowball method, this family will eventually become debt-free, even with substantial debts like the Toyota loan. It takes consistency, discipline, and commitment to stick to this plan, but the reward is financial freedom and the peace of mind that comes from being debt-free.
I hope this breakdown gives you a clear understanding of how to use the debt snowball method to tackle all your debts systematically. If you have further questions or need more detailed guidance, don’t hesitate to reach out.
To successfully follow the debt snowball plan, this person needs to be aware of several key principles and strategies beyond simply making payments. Here are additional tips, advice, and things to consider that will help them stick to the plan and achieve financial freedom:
Budgeting is Essential
- Create a Detailed Budget: A debt snowball plan is only effective if there’s a consistent monthly budget in place. List all sources of income and essential expenses such as rent/mortgage, utilities, food, transportation, and insurance. Dedicate any remaining funds to debt payments.
- Track Every Dollar: Track every expense to avoid surprises. Use a spreadsheet, budgeting app, or notebook to record spending. This will help identify areas where they may be overspending and can redirect those funds toward debt payments.
- Account for Irregular Expenses: Some expenses, like annual insurance premiums or holiday spending, aren’t monthly but can disrupt the plan if not accounted for. Set aside a small amount each month to cover these irregular expenses so they don’t interfere with the debt payments.
Emergency Fund First
- Build a Small Emergency Fund First: Before aggressively paying down debt, set aside a small emergency fund (e.g., $500 – $1,000). This acts as a buffer for unexpected expenses, like car repairs or medical bills, so you’re not forced to rely on credit cards if something comes up.
- Add to It Slowly as You Pay Debt: While the primary focus is paying off debt, adding a little bit to the emergency fund over time can provide additional financial security. Once the high-interest debts are paid off, aim to build a larger emergency fund that covers 3-6 months of expenses.
-
Cut Unnecessary Expenses
- Eliminate Non-Essential Spending: This person should take a close look at discretionary expenses like dining out, streaming subscriptions, and impulse purchases. Cutting these back (even temporarily) can free up extra funds for debt repayment.
- Negotiate Bills: Contact service providers (like cable, internet, and insurance companies) and try to negotiate lower rates. Every little bit saved can be put toward debt.
- Look for Low-Cost Alternatives: Find free or low-cost ways to enjoy entertainment, shop, and even meet health needs. For example, utilize the library for free books, use discounts for groceries, and explore free community activities.
-
Increase Income Whenever Possible
- Side Hustles or Part-Time Work: Picking up a side job (like freelancing, tutoring, or delivering food) can help accelerate debt repayment. Even an extra $100 – $200 per month can speed up the snowball effect.
- Sell Unused Items: Selling items around the house (like electronics, furniture, or clothes) can provide a quick cash infusion that can go directly toward debt.
- Request a Raise: If their main job provides opportunities for raises or promotions, they should consider discussing this with their employer. Additional income from a raise can be used to boost debt payments.
-
Avoid New Debt
- Pause Credit Card Use: Avoid using credit cards to prevent adding more debt. Stick to a cash or debit card system until debt is under control.
- Only Take on Necessary Debt: In cases where debt cannot be avoided (such as medical emergencies), do everything possible to keep new debt low. Avoid financing large purchases like vacations or cars during the debt payoff period.
- Avoid Temptation by Limiting Exposure: Unsubscribe from marketing emails, avoid online shopping apps, and delete saved credit card information from retail sites to avoid impulsive spending.
-
Stay Disciplined and Motivated
- Track Progress: Keep a visual reminder of the debt snowball progress. You could use a chart or spreadsheet that shows each debt balance decreasing over time. Watching balances shrink can be incredibly motivating.
- Celebrate Milestones: Reward yourself (in a small, budget-friendly way) when each debt is paid off. This could be as simple as a special meal at home or a small treat.
- Visualize a Debt-Free Future: Remind yourself regularly why you’re on this journey—whether it’s to have more financial freedom, save for retirement, buy a house, or take a dream vacation. Having a clear vision of life without debt will keep you motivated.
Review and Adjust the Plan Regularly
- Monthly Review: Each month, review the budget and snowball payments to ensure everything is on track. If income or expenses change, adjust the plan accordingly.
- Reprioritize as Needed: Sometimes, life events (like medical issues or car repairs) might require temporarily redirecting funds. Make adjustments if necessary, and once the situation stabilizes, refocus on the debt snowball.
- Account for Pay Raises or Bonuses: If the person receives a raise, bonus, or tax refund, they should consider putting at least a portion of it toward debt. Even a one-time contribution can make a significant difference.
Understand Debt Snowball vs. Debt Avalanche
- Debt Snowball vs. Debt Avalanche: While the debt snowball method focuses on paying the smallest debts first to build momentum, the debt avalanche method focuses on paying debts with the highest interest rates first to save on interest. If saving money on interest is a higher priority, consider switching to the avalanche method.
- Stick with What Works Best: However, if motivation is more important than optimizing for interest savings, stick with the snowball method. The key is choosing a plan that feels achievable and motivating for the long term.
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Learn Financial Literacy and Money Management
- Educate Yourself: Learning about financial management, debt, budgeting, and investing will build confidence. Reading books, following blogs, or even taking free online courses can empower them to make informed financial decisions.
- Seek Advice if Needed: Financial literacy is a lifelong journey. Don’t hesitate to ask for help from trusted resources like PVS Financial Coaching & Services or local nonprofit financial advisors if you need more guidance.
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Use Financial Resources for Support
- Explore Assistance Programs: For low-income families, there are often community resources or assistance programs available. Research any local, state, or federal resources that provide support for food, medical bills, or utilities.
- Utilize Free Tools and Resources: Many budgeting tools, apps, and resources can help organize finances and create an actionable plan. Apps like Mint, YNAB, or even basic spreadsheets can make budgeting easier.
Step-by-Step Guide Summary for Surviving Rising Inflation
With inflation increasing the costs of essentials like groceries, housing, and healthcare, it’s more important than ever to follow these steps for budgeting and debt repayment:
- Set Up a Budget: Track all income and expenses, adjusting as needed.
- Create an Emergency Fund: Even a small amount for unexpected costs can prevent additional debt.
- Prioritize Debt Repayment: Stick to the debt snowball plan and focus on each debt individually. To get a free debt snowball plan excel spreadsheet to use, click here. Please save it on your desktop, phone or laptop to make personal edits.
- Cut Expenses: Reduce non-essential spending wherever possible.
- Increase Income: Use side jobs or sales of unused items to increase monthly cash flow.
- Stay Consistent and Motivated: Track progress and celebrate small wins.
- Regularly Review the Plan: Reassess budget and debt payments monthly.
- Avoid New Debt: Limit credit card usage to prevent adding new debt.
- Seek Additional Help: Use community resources or financial advisors if necessary.
Conclusion
Following these additional steps and staying disciplined will help you navigate your financial journey successfully. By establishing a realistic budget, committing to the debt snowball plan, and staying vigilant against lifestyle inflation, you can overcome rising living costs and reduce your debt over time. Every step you take toward budgeting, saving, and paying down debt brings you closer to financial independence.
If you need more help with creating a budget, sticking to the debt snowball, or figuring out how to handle unexpected expenses, you can reach out to PVS Financial Coaching & Services for personalized guidance and support. To save or download the spreadsheet used to make the calculations above, click here: Debt Snowball Plan Worksheet. You can edit the spreadsheet and enter your debt and numbers to match your personal plan. Please save the spreadsheet first before making changes.
Contact us today to start your journey toward financial freedom!
***Please note: Since debt balances change each month due to interest, the actual number of months to pay off each debt will vary slightly from this estimate. This is a high-level guide to illustrate the snowball method in action.
