If you’ve been following along with Daily New Year’s, you know I’m all about helping people achieve their goals.

Life goals, health goals, fitness goals, and yes financial goals – I love talking about goals!

Now, I’m not a financial advisor, but I have read a fair share of finance books. One of my favorites was Dave Ramsey’s The Total Money Makeover, and I want to share a debt payoff strategy that changed my life.

If you haven’t heard of Dave, he’s one of the nation’s top financial gurus. In his book, Dave talks about how to take control of your debt and your finances and one of his methods is the famous Debt Snowball.

What is the Debt Snowball?

The Debt Snowball is a strategy where you list out all of your debts from smallest to largest and pay the minimum payment on all of your accounts except the smallest one. Then, you begin to put every extra dollar you can afford from your monthly budget towards paying off the lowest balance first.

The interest rate is not a factor in this method.

Once you pay off that smallest debt, you roll, or snowball, that payment into the next lowest debt. So, if your smallest debt’s minimum payment was $25.00 and you were paying the minimum plus an extra $20.00, you would now apply that $45.00 to the next debt in addition to its minimum payment.

Related: 10 Financial Goals for Mastering Your Money

Compare that to the Debt Avalanche which is to pay off the highest interest rate account first, and then work your way down to the next highest interest rate. The Debt Avalanche could be better if you have large amounts of debt because you’re ultimately reducing the total amount of interest you pay, but Dave’s experience says that this doesn’t matter.

Criticism for the Debt Avalanche

Since the creation of the Debt Snowball, many people have criticized that it’s not the most mathematically optimal way to get out of debt, compared to the Debt Avalanche, but Dave argues that the Debt Snowball provides a motivational boost that keeps people excited to pay down debt, making it work better in the long run.

In this YouTube video Dave says:

“Personal finance is about 80% behavior. It’s only about 20% head knowledge and math. The problem with your money is not your math. … Debt is not a math problem, if it were, you wouldn’t be in debt in the first place. It’s a YOU problem.”

That’s why the Debt Snowball is so effective: it keeps you motivated and paying off debt month after month.

The Debt Snowball Advantage

Dave concluded that the Debt Snowball is much better because it gives people more frequent wins. You apply as much effort as you can to pay off that first debt, and it feels great! Then, with that motivation and energy, you attack the next debt.

Unlike the Debt Avalanche, the Snowball method keeps the hope alive, and in spite of not being the best mathematical approach, the Debt Snowball results in more people becoming debt free.

Wouldn’t that mean that it works better?

Related: How to Achieve Huge Goals and Keep Your Momentum

The Avalanche method could take well over a year before you even pay off the first account, depending on your debt level. That’s discouraging! The Snowball, on the other hand, provides more frequent success, and therefore, people tend to stick with it more often, leading to more debt reduction. Case closed.

Does the Debt Snowball Work?

Yes! It really works – I should know! I’ve read Dave’s book a couple of times, and I’ve applied his strategy to my mine and my wife’s finances. At one point in time, I believe we had three student loans, two car payments, and two credit cards and we were looking to make major improvements to our finances.

My wife was reluctant to try the Debt Snowball at first. Dave preaches a “rice and beans” approach to trimming the budget that was a bit too extreme for her. Even though we didn’t elect to pursue the extreme budgeting, she still wasn’t too excited about the plan.

Related: Debt Free Living is Possible & the #debtfreecommunity is Proving It!

It took some time, but I still remember paying off that first student loan and how her excitement started to build. She was getting into it!

A little while later, after the second payoff, she was all in! We were both so excited to be making so much progress, and today, we only have a mortgage and one vehicle payment, and we’re working on those!

Use Undebt.it to Track Your Progress

I’ve seen all kinds of excel templates, worksheets, and apps that help you set up the Debt Snowball, but my favorite is, by far, undebt.it.

Undebt.it allows you to add in all of your debts quickly, set a monthly budget, and then compare which payoff plan will get you debt free the fastest. And, it’s free!

Here’s an example using some sample data:

Photo of the debt payoff plans on Undebt.it's website.

Debt payoff plans on Undebt.it’s website.

Given my sample data, the payoff plans don’t vary all that much, so I would pick the Debt Snowball for sure. Every time you make a payment, you can log in, record the payment, and monitor your progress.

When I would do this, I would check the payoff table (which shows you the date when you’ll pay off your next account), and I would try and find ways to make extra payments so that I could shorten my payoff window.

It was encouraging and made for quite the game!

Be Patient and Have Fun

The idea of becoming debt free can be a daunting one, especially once you load in your real data and see that your debt-free date may be two or three years away, but it will be so worth it! Sure, there will be ups and downs along the way, good months and bad months, but anything worth having is worth working hard to have.

Just think about all of the discretionary money you’ll have once you’re debt free! More exciting still, you can then start investing or saving for retirement, but that’s a post for another day.

photo of a person filling out the Daily New Year's budget planning sheet

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Disclaimer: Some of the links in this post are affiliate links. If you click on the link and purchase the item, I will receive an affiliate commission at no extra cost to you. All opinions remain my own.

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