How to calculate your snowball debt
Think the debt snowball method might be for you? You can implement it immediately. It shouldn’t take you more than 30 minutes to calculate your snowball debt and get a debt payment plan set up. Here’s how it’s done.
Find the total of each of your debt accounts
Start by making a list of all of your debt accounts. These could include student loans, auto loans, personal loans, and credit card debt (again, mortgages are excluded from the debt snowball method). Next, check the current balance on each of your debts. This will help you determine the first debt to tackle (the one with the lowest dollar amount balance).
Here’s a simple example:
| Type of Loan | Current Balance |
| School loan | $25,000 |
| Car loan | $5,000 |
| Credit card | $10,000 |
Find the interest rate of each of your debt accounts
Next, check the interest rate for each of your debt accounts. While the snowball method doesn’t prioritize a payment schedule on the basis of interest, this can still impact the total balance of your accounts and the payment amount due each month. Continuing with the above example, here’s what this could look like:
| Type of Loan | Current Balance | APR |
| School loan | $25,000 | 3.99% |
| Car loan | $5,000 | 12% |
| Credit card | $10,000 | 16% |
Focus on paying off the smallest debt account first
Using the information above, you can set a payment schedule and determine which creditor to pay first. Since your car loan is the smallest, start here. After you’ve made the minimum monthly payment on each of your loans, put your extra cash toward the car loan.
| Type of Loan | Current Balance | APR |
| School loan | $25,000 | 3.99% |
| Car loan* | $5,000 | 12% |
| Credit card | $10,000 | 16% |
Keep reapplying payments to the next smallest balance
Once you pay off the smallest debt, you’ll move to the next one. In this case, once you finish with the car loan, you’ll roll over the extra money you were putting toward that debt each month and now use it to pay off your credit card. Once that debt is paid off, you’ll tackle that pesky student loan.
| Type of Loan | Current Balance | APR |
| School loan | $25,000 | 3.99% |
| Credit card* | $10,000 | 16% |
Your financial future begins with you
The snowball method is one effective way to pay off debt. Eliminating your smallest balance quickly and then moving on to the next debt can be a great motivator and can empower you to continue on your journey toward becoming debt-free. There are also other approaches to debt reduction you can explore, like debt consolidation or refinance options.
Whatever path you choose, eliminating debt is one valuable component of improving your money management and overall financial health. A holistic approach to greater financial freedom also involves investing your money to make it work for you and earning more, ideally through diverse income streams. You can find out how it all works with the “I Will Teach You to Be Rich” book.
