How to Get Your Debt Snowball Rolling

How to Get Your Debt Snowball Rolling September 14, 2012

If you’re trying to get out of debt, chances are high that you’ve heard of Dave Ramsey’s book, The Total Money Makeover. In fact, Tim has written a post that summarizes Dave’s well-known Seven Baby Steps.

Baby Step number two is an important step for many, because it teaches you how to finally get out of debt. It’s called the Debt Snowball, and here it is in a nutshell.

  1. List all of your debts – not including your mortgage – in order from one with the smallest balance to largest.
  2. Pay the minimum amount on ALL debts in order to stay current. On top of this, apply every extra dollar that you can get toward the first (smallest) debt, until that debt is completely paid off.
  3. Once the smallest debt is paid off, the payment amount from that debt, plus any extra money you can find, is applied to the second (next smallest) debt.
  4. When debt number two is paid off, you take all of the money that you used to pay on both debts number one and two, and you apply it to debt number three.
  5. Lastly, you keep this process going until you’re finally debt free.

For the Debt Snowball to truly work, you’ll need intense focus and sacrifice. But what do you do if you’ve created a budget, yet find that there’s only enough to make all of the minimum payments? What if there’s no extra money to apply to the smallest debt?

How to Get the Debt Snowball Rolling

If your budget won’t let you get the snowball rolling, you have two time-tested options:

  1. Lower your expenses, or
  2. Increase your income

Lower Your Expenses

Cutting your cable bill, shopping for cheaper auto insurance, and selling any items you bought using debt are all things that you can do to lower your expenses.

For instance, if you’re driving a car that you’re still making payments on, consider selling it. Use the proceeds from the sale to buy a more economical car – and pay for it in full with cash.

Although it may be difficult to give up some of these luxuries, these are all quick wins you can achieve. But what if it’s still not enough to get your debt snowball rolling? What else can you do?

Increase Your Income

One easy way you can do this is to sell some of the stuff you don’t need or use anymore. Maybe you have tools you don’t use, clothes that don’t fit, or books you don’t read anymore. You can sell them through a physical garage sale, or online through sites like Ebay or Craigslist.

Another way to increase your income so that you can speed up debt repayment is to work more. The drawback to this method, however, is that if you have a family and loved ones, you’re taken away from them during that time.

But if you’re in an extreme amount of debt, you may want to find an extra job, just for a short period of time. After a few debts are paid off, you can re-assess your family situation to see if you should quit the second job.

A third step to consider is to stop your retirement plan contributions temporarily. This may sound like a bad financial decision, especially if your employer provides a matching contribution.

But if you’re extremely focused on getting out of debt, this hold on your retirement funding shouldn’t be too long. After you’re debt free, you’ll be able to return to contributing to your 401k. In fact, think about how much more you’ll be able to contribute if you no longer have debt payments!

What have you done to get your Debt Snowball rolling?

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