How to Use The Snowball Effect to Clear Out Your Debts

First, you want to start by collecting your credit card statements as you receive them in the mail. If you receive them online, then log into the creditor’s website and print your most recent statement from each company.

Using a pen and paper or using an spreadsheet program on your computer, write down the following information for each card:

1. The name of the card
2. The current balance on the card
3. The due date
4. The minimum amount due for your monthly payments.

Notice I didn’t ask you to record the interest rate. At this point, unless you have two or more cards with the same balances, the interest rate isn’t important when you use the snowball method to pay off debt. If you get to the point where you have two cards with similar balances, choose the one with the highest interest rate first. Once you’ve completed this step you can move on to the next one.

Next, sort the credit cards by the amount due, with the smallest balance first. This is because the snowball method of paying down debt requires that you pay off the bill with the smallest balance due first. This way you’re able to see progress quickly, which is important, because it motivates you to continue chipping away at those big bills when you can pay off individual cards quickly.

The third step, which is the most confusing, is to determine how much extra you can spare from your budget each month, to use to pay down debt. Pay the minimum amount due on all of your cards except the one with the lowest balance. Normally you’re told to always pay more than the minimum, but you’re only going to follow that advice for the card you’re paying off first.

For the credit card you’re paying off right now, pay the minimum amount plus the extra from your budget. For example, if your minimum payment is $25 and your budget allows an extra $20 towards credit card debt each month, pay the minimum balance on all of your cards, but pay $45 ($25 minimum + $20 extra) towards the first card. Follow this formula every month until you’ve paid off the first card.

That’s it! That’s the entire plan. Easy, right? But now you’re wondering what to do after you’ve paid off that first bill. I will tell you. You simply repeat the same process on the next card.

After you pay off that first card you’ll have a new card with the lowest balance. We will call this one Card Two. This time you’ll really be able to “snowball” your efforts because you’re going to pay the regular minimum balance to that card, plus the extra $45 that you were paying towards the card you just paid off. So if the minimum balance on Card Two is $30, you’re going to pay $75 each month towards this car ($30 minimum + $45 that you’re no longer paying towards the first credit card bill).

Every time you pay off a bill, you just add that payment to the minimum payment on the card with the lowest balance. Before you know it, you’ll be debt free.