“Ok, I have to ask. How on earth do you pay off almost $100,000 in debt??”
As my friend asked the question, I heard the familiar sounds of frustration and disbelief in her voice. I recognized the sounds because about five years ago (and many times since), I felt the same way. Debt feels stifling and overwhelming. It’s that weight on your chest that seems to get heavier every time you want to buy something. It’s that monster whose eyes you try to avoid, knowing that eventually, it’s going to bite. I KNOW that feeling–the “that plan works for those people, but WE could never pay off all of our debt” feeling. But now, we have paid off our cars and are on track to finish paying off our student loans before the end of this year, totaling nearly $100,000 in debt payoff. How? Two words:
Debt. Snowball.
About 7 years ago, I came across a book called The Total Money Makeover by Dave Ramsey. At the time, I was finishing my second graduate degree and working at a low-paying job. My husband, who I was dating at the time, was also working a fairly low-paying job. We assumed that car payments were normal–everyone we knew had them–that student loans were meant to be paid off over 20 years, and that as long as we were making the minimum payment on our credit cards each month, we were doing just fine. The problem was, we were barely covering our bills and were constantly waiting for the other shoe to drop. Then I was introduced to the concept of the debt snowball. Here’s how it works:
Let’s say you have 5 debts (not counting your mortgage, which Ramsey does not include in the debt snowball. The mortgage gets paid off later):
- Student Loan A: $15,000
- Student Loan B: $2,000
- Student Loan C: $7,000
- Car Loan: $30,000
- Credit Card: $3,000
Step One: List all of your debts from smallest to largest, regardless of interest rate.
| Student Loan B | $2,000 |
| Credit Card | $3,000 |
| Student Loan C | $7,000 |
| Student Loan A | $15,000 |
| Car Loan | $30,000 |
Step Two: Pay the minimum on all debts except for the smallest. Any extra money in your budget should go towards the smallest debt. (Not sure how to create a budget? Here’s how we do it). Do that every month until the smallest debt is paid off.
| Loan | Balance | Min. Payment | Addl. Payment |
| Student Loan B | $2,000 | $50 | $98 |
| Credit Card | $3,000 | $60 | $0 |
| Student Loan C | $7,000 | $80 | $0 |
| Student Loan A | $15,000 | $120 | $0 |
| Car Loan | $30,000 | $250 | $0 |
Step Three: Take the money you put towards the smallest debt ($50 in the example above), plus any extra money in your budget ($98 in the example above) and put that towards the next smallest debt. Keep doing that until the second smallest debt is paid off. Repeat the process with the remaining debts until all are paid off.
| Loan | Balance | Min. Payment | Addl. Payment |
| Student Loan B | $0- PAID! | $0 | $0 |
| Credit Card | $3,000 | $60 | $148 |
| Student Loan C | $7,000 | $80 | $0 |
| Student Loan A | $15,000 | $120 | $0 |
| Car Loan | $30,000 | $250 | $0 |
Here’s why this works: little wins motivate you to achieve bigger wins.
Why not arrange your debts by interest rate? Imagine that Student Loan A ($15,000) has an interest rate of 6.8%, and Student Loan B ($2,000) has an interest rate of 3.5%. It would take you much longer to pay off Student Loan A, right? It’s a lot harder to keep up your momentum if it takes you 5 years to achieve a goal, instead of 1 year.
The same holds true for trying to spread out extra money across all of your payments, which is exactly what I used to do. I thought that I would chip away at all of them at the same time. IT DOESN’T WORK. Compounding interest erases your progress, leaving you to wonder, after 8 years of paying on a student loan, why you still have a principal balance of $8,500 on a loan that was originally $10,000. Why. WHY?
By focusing on the smallest debt first and getting it out of the way, you see that you can actually do it. You don’t have to live with these payments forever. That motivates you for the next one, and the next one. Then you get to the point that we are at, where you start to see a light at the end of the tunnel. And it’s beautiful. I’m talking Will Ferrell in Old School, “I saw Blue, and he looked gloooorious” kind of beautiful.
Have any of you tried the Snowball Method for paying off debt, or has a different strategy worked for you?
the happy budget 
I think you are right about the small wins leading to long term progress. Thanks for sharing!
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It’s amazing how much those small wins have made accomplishing our huge goal seem possible. Thank you for taking the time to comment!
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I also so my life change after reading The Total Money Makeover. It was an eye opening experience. My wife and I have paid off $73,000 in the past two years. We don’t have much left. Since the start of my debt snowball I have reduced my monthly expenses by $2,300. That is one hell of a raise!
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That’s fantastic–congratulations! What a huge accomplishment. What was the biggest change that you and your wife made to get yourselves on track to pay off that much in two years?
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We embraced the vision of what being financially free
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Having a vision definitely helps. Thanks for sharing!
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Holy shit I should buy that book. I always read to pay off the loans with the highest interest rate first, but this makes sense. It would feel AWESOME to at least get ONE loan out of my way.
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I thought the same thing! It was amazing how much more progress we were able to make doing it this way instead. I would definitely recommend checking out the book.
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I *love* this method. It feels so amazing to have the extra paid on loans keep getting bigger, even if my spending habits aren’t changing (which they do, so even more gets paid off–or builds emergency savings). Thanks for sharing!
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I agree, Anne! I’m someone who needs to see progress quickly, so this method works perfectly for me. Thanks for commenting!
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My husband and I are just starting our TMMO journey. My goal is to be debt free in 5 1/2 years…before I turn 35. We have $74k in debt (student loans and one truck) and around $85k on our house. I know we can do this!! I’m so excited to see my snowball start rolling!
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You guys can definitely do it! It sounds like such a big number to start with, but once you get going, it’s so motivating to see what you’re capable of. Good luck!
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My hubs and I are just starting the debt snowball and are on baby step 1 of creating an emergency fund and 2 on the debt snowball. Sometimes I think we are starting too late but some of the stories the people have shared following his method really gives us hope. I just recently paid off the lowest debt I have. It was small but the feeling that it’s no longer there is great!
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It’s never too late! I think that anyone who starts this process wishes that they had started sooner (I know that I did). Don’t bother giving the timing too much thought- you’re doing the right things now and that’s what matters!
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Your analogy of the feeling of debt is spot on……
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I have undergrad loans that are consolidated and graduate schools loans which are also consolidated. Loans L1&L2 are one consolidated payment and L3&L4 are another consolidated payment. These are Stafford Loans but they have been sold 3 times and I am now under Navient. They do not let me pay extra $ on individual loans unless I wait 5-7 after the payment and CALL them to clarify how I want my money allocated. It’s nuts and very tricky. I feel like they are total frauds. Any suggestion to tackle this type of loan? I fear the snowball method may not be as effective since they split the payment between each of the loans and the interest before it even goes to the principle.It’s taken me 9 years (throwing extra money at them when I can) to pay off $18,000 ($280/mo). I still owe quite a bit. Any suggestions would help. Thanks.
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I know the feeling! Navient is the worst. Without seeing exactly how your loans are broken down with them, it’s hard to give a solid answer. What you may want to try is sending your payment through the mail each month with a letter and your monthly loan statement, rather than paying online. I tried that before with another loan company and had good luck with it. You would say something like this in the letter: “Enclosed is a check for $500. Please apply $280 to my monthly payment for Loan X and Loan Y. Please apply the excess payment of $220 to the principal balance of L1. Should you have any questions, I can be contacted at 555-555-5555 or mrsmotherdirt@gmail.com.” Hope that helps–let me know what you end up trying, and if it works!
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I used to do that with the previous 2 companies that owned my loan. I know they are the subject of a huge lawsuit right now, so maybe something good will come of it. Do you think just saving large chunks and then calling them to allocate the $ where I want would be a good approach???
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That depends on how big the balances are. If the balances aren’t very large, you probably aren’t getting a ton of interest tacked on each month, so it wouldn’t hurt too much if you waited until you had some bigger chunks of money to throw at it. For me personally, though, I needed to see the forward progress each month, so even if I only had $50 extra to put on a loan, I’d do it. Also, I’d worry that if I hung on to the extra money too long, it would end up being spent on something else.
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good points! Thank you.
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