If you want to get rid of debt once and for all, the debt snowball repayment plan might be your golden ticket.
The Debt Snowball method is a financial tool to explore if you carry debt and are motivated to pay it off.
Years ago, we were faced with paying off debt or investing money, and we chose debt.
Although we invested some money into our TFSA and RRSP, paying our mortgage was a priority.
Related: How we paid our mortgage off in five years
We received some slack for that from readers, although not a day goes by that we regret our debt repayment plan.
My point is that you can’t always listen to what others tell you to do with your money.
You need a plan if you carry debt, whether a student loan, car loan, mortgage, or multiple credit card debts.
Today, I want to explore the debt snowball method for unfamiliar readers new to budgeting.
I hope it allows you to gain a better insight into an alternate option to pay off debt.
Pay off debt fast using the Debt Snowball Method.
Finance expert Dave Ramsay started the snowball method of paying off debt.
Mr. Ramsay popularized the debt snowball for users to gain momentum by wiping out debt.
For example, wiping out the smallest debt first encourages you to continue wiping out the rest.
As challenging as it may seem, avoid worrying about the interest rate for the debt snowball method.
When you finally pay off one debt, a little piece of the weight on your shoulders is removed.
Following the debt snowball method can effectively pay off debt apart from a mortgage.
Consider how you feel if you lose 10 pounds and motivate yourself to lose 20.
The revelation of the debt snowball method feeds off the small wins to produce more significant wins.
A mortgage is a massive debt and generally is not factored into the debt snowball method since interest rates are low.
Debts that may be considered for the debt snowball method:
Someone once asked me how much credit card debt is normal to which I answered none.
Credit cards should never be used unless you can pay the total amount at the end of the month.
Most credit cards come with a significant interest rate after the promotion ends, which is why reading the fine print is critical.
You might be driven to pay the debt with the most significant interest rate, but the snowball method focuses on the smallest balance, not interest.
If you carry a credit card balance of just $1000 a month with a 20% interest rate, you’re paying $200 a month extra.
Every dollar costs you an extra $0.20 x 1000 = $200 monthly in credit card interest.
Now you owe $1200 a month; if you don’t pay that off, it continues to climb every month.
Although it can be a nightmare, I’ve heard of people doing a credit card balance transfer.
The user bounces the debt to a new credit card with a lower interest rate, sometimes zero, for up to six months.
The idea is that it buys more time for the cardholder to pay off the debt in full without incurring more interest.
Honestly, I’d focus on your debt repayment plan regardless of the interest on the debts you owe.
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My tip for saving money and paying debt is to live a frugal lifestyle.
My paychecks are $700 bi-weekly, so I budget $600 bi-weekly and put the $100 in savings.
Related: Review of Simplii Financial The No-Fee Bank Account
You may even notice that you might need to get a second job.
It took me three years to get the budget right, and I am not ashamed to admit my struggle.
Work all the overtime you can and save that extra into a savings account.
The debt snowball printable below tracks multiple debt repayments in one form.
You can get this free by subscribing to Canadian Budget Binder.
Free Budget Binder Printable Debt Snowball
Below is a free debt snowball printable to track each debt month to month. You can get this by subscribing to Canadian Budget Binder.
Debt Snowball Method Printable
You’re probably asking where you’d find extra money to use the debt snowball method.
Any amount is better than nothing at all to pay extra on the smallest debt you owe.
We have earned tonnes of extra money over the years using systems that work.
Let me list a few methods of earning extra cash.
Sign me up!
Sign me up!
After these years of paying off debt, I’ve learned that it takes dedication.
With so many spending motivators around us, it’s easy to get lost in a shopping spree.
Let go of the missing out mentality and focus on winning your debt freedom spot.
There is another debt repayment plan called the Debt Avalanche, which I will compare with the Debt Snowball Method in another blog post.
Discussion: Have you tried the debt snowball method to reduce debt? Did it work, or were there roadblocks in your way?
Please leave me your comments below.
Thanks for stopping by,
Mr. CBB
Get your copy of the Free 2023 Budget Binder, which includes the Debt Snowball method printable.
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The post How To Use The Debt Snowball Method appeared first on Canadian Budget Binder.
The Debt Snowball method is a financial tool to explore if you carry debt and are motivated to pay it off.
Years ago, we were faced with paying off debt or investing money, and we chose debt.
Although we invested some money into our TFSA and RRSP, paying our mortgage was a priority.
Related: How we paid our mortgage off in five years
We received some slack for that from readers, although not a day goes by that we regret our debt repayment plan.
My point is that you can’t always listen to what others tell you to do with your money.
You need a plan if you carry debt, whether a student loan, car loan, mortgage, or multiple credit card debts.
Today, I want to explore the debt snowball method for unfamiliar readers new to budgeting.
I hope it allows you to gain a better insight into an alternate option to pay off debt.
Pay off debt fast using the Debt Snowball Method.
Does The Debt Snowball Method Work?
Finance expert Dave Ramsay started the snowball method of paying off debt.
Mr. Ramsay popularized the debt snowball for users to gain momentum by wiping out debt.
For example, wiping out the smallest debt first encourages you to continue wiping out the rest.
As challenging as it may seem, avoid worrying about the interest rate for the debt snowball method.
When you finally pay off one debt, a little piece of the weight on your shoulders is removed.
Following the debt snowball method can effectively pay off debt apart from a mortgage.
Consider how you feel if you lose 10 pounds and motivate yourself to lose 20.
The revelation of the debt snowball method feeds off the small wins to produce more significant wins.
A mortgage is a massive debt and generally is not factored into the debt snowball method since interest rates are low.
What Debts Can Be Included In The Debt Snowball Method?
Debts that may be considered for the debt snowball method:
Credit Card Debt
Student Loan
Vehicle Loan
Personal Loan
Bank Loan
What Is The Smartest Way To Pay Off Debt?
Someone once asked me how much credit card debt is normal to which I answered none.
Credit cards should never be used unless you can pay the total amount at the end of the month.
Most credit cards come with a significant interest rate after the promotion ends, which is why reading the fine print is critical.
You might be driven to pay the debt with the most significant interest rate, but the snowball method focuses on the smallest balance, not interest.
If you carry a credit card balance of just $1000 a month with a 20% interest rate, you’re paying $200 a month extra.
Every dollar costs you an extra $0.20 x 1000 = $200 monthly in credit card interest.
Now you owe $1200 a month; if you don’t pay that off, it continues to climb every month.
Although it can be a nightmare, I’ve heard of people doing a credit card balance transfer.
The user bounces the debt to a new credit card with a lower interest rate, sometimes zero, for up to six months.
The idea is that it buys more time for the cardholder to pay off the debt in full without incurring more interest.
Honestly, I’d focus on your debt repayment plan regardless of the interest on the debts you owe.
Get CBB By Email + My Free Printable Budget Binder!
Sign me up!Sign me up!
Reader Debt Repayment Tips
My tip for saving money and paying debt is to live a frugal lifestyle.
My paychecks are $700 bi-weekly, so I budget $600 bi-weekly and put the $100 in savings.
Related: Review of Simplii Financial The No-Fee Bank Account
You may even notice that you might need to get a second job.
It took me three years to get the budget right, and I am not ashamed to admit my struggle.
Work all the overtime you can and save that extra into a savings account.
How Does The Debt Snowball Method Work?
The debt snowball printable below tracks multiple debt repayments in one form.
You can get this free by subscribing to Canadian Budget Binder.
Free Budget Binder Printable Debt Snowball
- List all of your debts from the smallest amount owing to the largest and number them as debt #1, #2, etc. Do not worry about the interest rates.
- Write down the minimum payment amount due for each debt.
- Tackle the smallest debt first, no matter what the interest rate is.
- Always pay the minimum balance on all your debts except the smallest debt. Any extra money you have leftover or earn during the payment period is put towards the smallest debt with the minimum payment. An example might be the smallest debt minimum payment is $35, but you have an extra $50 you earned by selling something. You take the $35 + $50 = $85 and put that towards the smallest debt while paying the minimum on everything else.
- Once the smallest debt is paid in full, you move to the next smallest and repeat the process. However, you take the minimum payment from the first debt you paid off and add it to the second smallest debt repayment. Example: First smallest $35 + $50 (second smallest) = $85 down on the second smallest debt. You build momentum this way.
- Once the second debt is paid off, you take $85 and add that to the debt #3 minimum payments, and so forth.
- Eventually, your debts will be paid off if you keep up with the motivation.
Below is a free debt snowball printable to track each debt month to month. You can get this by subscribing to Canadian Budget Binder.
Debt Snowball Method Printable
Finding Extra Money To Pay Off Debt
You’re probably asking where you’d find extra money to use the debt snowball method.
Any amount is better than nothing at all to pay extra on the smallest debt you owe.
We have earned tonnes of extra money over the years using systems that work.
Let me list a few methods of earning extra cash.
Sell what you no longer use at home or in storage.
Save money using rewards apps, coupon apps, and reduced food apps such as FlashFood.
Create a job using your skills example, mechanic, before and after school care, dog walking, knitting, sewing, tutoring, etc.
Start a blog to earn extra income. (How I made my first $100 blogging)
Fill out surveys
Become a host family (we did this, and it was fantastic tax-free money)
Rent a room in your home or apartment (do your research first)
Budgeting helps to reduce costs in specific budget categories
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Paying Off Debt Takes Dedication
After these years of paying off debt, I’ve learned that it takes dedication.
With so many spending motivators around us, it’s easy to get lost in a shopping spree.
Let go of the missing out mentality and focus on winning your debt freedom spot.
There is another debt repayment plan called the Debt Avalanche, which I will compare with the Debt Snowball Method in another blog post.
Discussion: Have you tried the debt snowball method to reduce debt? Did it work, or were there roadblocks in your way?
Please leave me your comments below.
Thanks for stopping by,
Mr. CBB
Subscribe To Canadian Budget Binder
Get your copy of the Free 2023 Budget Binder, which includes the Debt Snowball method printable.
Get CBB By Email + My Free Printable Budget Binder!
Sign me up!Sign me up!
The post How To Use The Debt Snowball Method appeared first on Canadian Budget Binder.