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How To Get On Top Of Your Debt

The Debt Snowball

Living with debt can be very worrying. The stress of debt can cause one to panic or worse, ignore their debt. But there is a way to manage your debt properly. So if you find yourself overwhelmed with credit cards, personal loans, and student loan payments every month, relax because you can easily get it under control. The solution is called the debt snowball.

The first step is to list all of your debts smallest to largest. Do not worry about the interest rate unless two debts have similar balances then list the higher interest rate first. This list should include delinquent bills as well. See below for an example.

Debt Total Payoff Minimum Payment New Payment Payments Remaining Cumulative Payments
Past Due Phone Bill 25 25 0 1 0
Visa 500 75 100 4 5
Loan From Mom 1500 100 200 5 10
Student Loans 4000 100 300 10 20


As you can see, the first three columns represent the debt, total balances, and current minimum payments due. Your objective is to make the minimum payments on everything except the smallest debt. For the smallest debt, throw as much money at it as possible until it is gone. As you rid yourself of the smallest debt, you will take funds previously allocated for the smallest debt and apply it to the next debt on the list. The new payment column represents the amount you should pay once you have eliminated the preceding payments. The payments remaining column represents the amount of payments needed using the new payment to purge the debt and the cumulative payments is the total number of payments (minimum and new payments combined). If each payment is made monthly, this chart indicates it will take 20 months to pay off all of the debt.

Organise And Manage Your Debt

Organizing your debt smallest to largest, allows you to focus on one debt at a time and attack it. It provides traction and gives you a feeling of accomplishment each time you knock out a debt. Many people try to pay off all debts at the same time but don’t see the needle moving towards a zero balance fast enough and tend to get discouraged. This method allows you to enjoy small victories as each debt is paid off and gives you a finish line to look forward to.  You should keep this chart visible as a constant reminder and motivation.


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