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The Debt Snowball Method

Updated: Jun 7, 2021

The Debt Snowball Method is one that I've personally found to be the easiest way to pay off debt. It may/may not be similar for you, so I'll start by saying this - One size won’t fit all.

If however, this is intriguing enough for you to keep reading, I'll step out the ways I used this method personally.

First off, I’ll be the first to admit that becoming debt-free isn't easy.

More so for us as young Pacific Islanders (especially for us women) who tend to accumulate a lot of debt quite quickly, then struggle to pay it off. See stats in this blog. Between the outrageous interest rates and paralyzing repayment rates, we're hard-pressed to repay our debt, without inadvertently going into further debt, in a vicious cycle. Sound familiar?

Today, I'll walk you through a method to get through this stifling merry-go-round. I'll talk about what the debt snowball method is; the advantages and disadvantages of this method; and how you can set up your own debt snowball.

What is the Debt Snowball Method, you might ask?

As the name implies, this method is akin to a snowball plummeting down a snowy mountainside - maybe not as easily relatable to a Pacific Islander, but please bear with me (FYI: I haven't seen snow either, outside of movies - so this one's for our active imaginations).

As the snowball rolls further downhill - it gets bigger and bigger. This is the same with your debt repayments.

They're minimal amounts at first - but over time, become bigger and bigger payments going towards paying off less and less debt.

What does this mean, exactly?

When you use the debt snowball method, you'll be making minimum payments to all your debts, except for the one with the lowest total.

For your lowest debt, you will instead be paying your minimum repayment amount including all extra income, until this is fully repaid.

Advantages and Disadvantages

Repaying debt is always difficult.

There's a reason the bank calculates your minimum loan repayment amount for you with a very precise formula. Anything on top of that amount would have a severe impact on your take home pay.

Sounds dire, doesn't it?

There's a flip side to this, though. I'm always a cup half full person, so I'd like to think of it this way...

When I use the debt snowball method, I'm able to pay off my lowest debts first... This means I free up money I can put towards my larger debts in the future. This is the essence of the debt snowball method and it’s biggest advantage. It is also the reason why I am a huge fan.

Still hard to picture? No problem, I've broken it down into five easy steps that will guide us through this process.

#1. List your Debts in order, from the lowest balance to the highest balance.

Say you have three debts you need to pay off (an example below):

  • Money borrowed from your parents: Let's call this Debt #1 and it is $1,000.

  • Your bank loan: Let's call this Debt #2 and it is $15,000.

  • Your car loan: Let's call this is Debt #3 and it is $60,000.

If the bank has made calculations for you, for some of these (i.e. the car and bank loans), the next step should be relatively painless.

There may be other debts that you've incurred outside of a credit facility, though. Say for example, loaning money from your parents. No humming and muttering, we are all guilty of this at some stage in our lives.

I certainly am. In fact, as a daddy’s girl, this was my massively toxic trait - in that I would always turn to my father if I ever ran short of cash… even when I started working - and even after I got married (much to my husband’s chagrin). This was fixed, when we decided to moved out to our own place (sound weird that we were still living with our parents, initially? Read my blog here about prices of first homes and monthly rentals, amongst other things, in Honiara). We consciously made this decision because. Independence. - and I was removed from my comfort zone.

Cue a shocking reality check that I will save for another day and another blog of discovering I actually HAVE toxic traits lol.

Speaking of other blogs, and back to the current topic - in my budgeting blog series, I talk about how I have broken down my pay in percentages. See here. From that exercise, I calculated that 20% of my fortnightly pay can go towards debt, without massively hurting me financially.

Realistically speaking though, your overall total figure for repayment may actually end up being a lot higher than this 20%.

This is where your initial stock take comes into play.

Do you have unnecessary things that you are hoarding at home?

I’m talking motivation jeans or dresses (i.e. clothes from yester-years, when you were a size ‘smaller-than-what-you-are-today’ in the hopes that you can somehow, miraculously fit back into them one day)...

Shoes you never wear...

They. All. Must. Go.

I am absolutely dead serious. Flog (ergo, sell) it all on Buy and Sell on Facebook; hold a garage sale; any, and whatever means you can use, to make the extra cash you will need to start off your debt free journey.

Can’t figure out where to start? I’ll upload a Marie Kondo-esque checklist to help your sort through your things - and decide what to keep and what you need to sell.

Think outside the box though... Are you crafty and/or creative? Can you sew? Bake? Paint?

Girl, I am DEAD SET CERTAIN you have a gift somewhere that you are not utilizing.

Before I drone on in this vein though, can I just say that the mindset that we should monetize our talents - or at least be amazing at doing things we love - is a capitalist lie.

You do not have to sing well, if you enjoy singing. I love singing for example, but I am also my father’s child and we are both painfully tone deaf (I'm pretty sure my mother is in mental stitches whenever we both sing hymns near her in church, but bless her stoic-ness... She's never flinched).

What I am trying to say here is, look for something you can do that can help you on your way towards paying off these debts.

#2. Make your minimum payments in all debt.

Now to get all your ducks lined up in a row.

This is where you figure out what your minimum payments will be, without hurting yourself financially for the next 14 days, before your next fortnight*.

(*If you get paid monthly, simply adjust these calculations for four weeks instead of two)

I’m guessing right now, so the figures I’ll be using in my example are figurative, but I’ll also try and be as realistic as possible.

Let’s say the bank has calculated your loan repayment for that $15,000 to be $450 a fortnight.

In addition, your car loan's repayment is about $2,000 a month for that $60,000 - so that would mean about $1,000 a fortnight.

*If you took on your car loan with a spouse, like I did with my husband; this figure then gets split two ways, coming up to roughly $500 a fortnight.

Let’s then say your salary is $3,000 a fortnight, after all deductions.

Using my rule of thumb, this will be divided as follows:

  • 60%: $1,800 - will be yours to spend during the next 14 days.

  • 20%: $600 - will be put towards your debt repayments. Non-negotiable.

  • 20%: $600 - will be put towards your savings. Also, Non-negotiable.

What do I mean by non-negotiable?

Obviously, that you can’t punk out on this amount. This is your red line deal breaker amount for your debt and savings. When you decide to start this journey, you will hold yourself to account and commit to making sure you spend this amount on your debt (for that Splurge account we made a while back), whilst also saving for the future (ergo, your Fire Extinguisher account that will be for your cultural overwhelm obligations).

Using my example of your possible three debts, your debt repayment stock take now looks like this:

  • DEBT 1: Parents $1,000 - minimum repayment $150.

  • DEBT 2: Bank Loan $15,000 - minimum repayment $450.

  • DEBT 3: Car repayment $60,000 - minimum repayment $500.

These total up to $1,100 and this amount, my lovelies, is your debt snowball!

Now you’ve calculated how much you can legitimately put towards debt without hurting yourself too much - $600. Conveniently enough, that’s your Debt 1 and Debt 2 repayments covered - but what about Debt 3?

This, my lovelies, is why the previous step where you did an inventory of everything you can sell, is so important. Any and all extra money will help you on your way.

Let me show you why, by explaining part three of our guide.

#3. Put all extra money towards paying off your lowest balance.

Let’s say, that after some serious soul-searching and self-flagellation, you decided to sell all those things you really didn’t need (emphasis on the didn’t*) after all - and made $500. This will immediately go towards Debt 1, on top of that $150 minimum payment you have for it.

Non-intuitive? Maybe. Maybe not… Let me explain.

When you calculated your money for your Blow account (i.e. the 60%, or $1,800), this amount was negotiable.

How much are you willing to sacrifice towards being debt free? If the answer is ‘A lot’, please brace yourself for a couple of hard - but eventually, very well worth - couple of months.

The simple answer to “How do I make the minimum repayment on Debt 3”? is, “From your 60%”. If this then means you living on $1,300 a fortnight, honey - you have to.

There is no easy answer to debt, but consistency is key here. (Also, are you now, more motivated to start selling or making stuff to help you on your debt free journey?).

Formative school may not have taught you this, but here in our reality, living in Honiara? - you really DO need a side hustle alongside your 9-5 job, to keep you going without stressing over your money.

A favorite author of mine said it the best:

“Keep the day job that allowed you to duck the 'Dons', keep my ‘No’s’, stay dangerous, and stabilize my marriage.”

What he essentially meant was: Keep your job, so you can avoid debt, be able to say No without feeling guilty, stay relevant in your industry and keep your marriage on an even keel.

I felt that in my soul - because if there is ANYTHING I learnt quickly from marrying young, it is that money will always make you fight, if you’re both not on the same page on how you should be spending it.

So how do you ‘stay dangerous’? I translated that bit to keeping relevant in my industry, but I think it can also translate to constantly utilizing your creativity.

“How?” you might ask. It might mean, baking something and selling it to your work colleagues. Or sewing something you can sell. The limitations to this are really only limited to your creativity.

#4. Put 1st debt's minimum payment towards your next lowest debt.

Now back to our debt snowball.

Let’s say that after a few fortnight’s, you’ve repaid your parents (yay, you!).

This is where the debt snowball analogy now officially comes into play.

You will now put that first debt’s minimum payment ($150) towards Debt #2, bringing Debt #2’s minimum repayment to $600 (excluding however much you also add to it from your extra income).

When Debt #2 is repaid, you then put $600 towards Debt #3, bringing that minimum repayment to $1,100 a fortnight - and $2,200 a month.

#5. Repeat steps 1 to 4, until all debts are paid off!

As it so happens, your Debt Snowball of $1,100 will remain the same (aside from any extra income) but you will simply be ticking off the lowest debts first - with each snowballing into the next - and the next - and the next!

That initial pay off point in itself, is a huge win for me. It also makes me more motivated, clearing a smaller debt, because I can then focus on paying off my bigger debts.

Mindset over matter - and those ‘baby steps’ Dave Ramsey keeps talking about really do put you in a more positive and happier mindset, knowing you have your own finances in check.

So that my lovelies, is the Debt Snowball Method - and the way I used it to repay my own debts. I hope that was helpful! Do drop me comments, or your takes on how you are tackling your own debt. I’d love to hear about it!

This may be the year of COVID-19, but that is NOT going to be a reason for our stress and worries. We can get through this extremely strange and hard time together. I promise.

P.s. If you’re starting out on a Debt Free Journey, do check out my Store and Debt Snowball printable (and others, that can help you begin) here!

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