# Testing the Debt Snowball Method

Today, I was listening to Dave Ramsey’s The Total Money Makeover, and he started talking about the debt snowball method.

Essentially, you list out all your debt in a certain order. At the top, you want your lowest payoff amount, and as you ascend through the list, it should end at your highest payoff amount. This used to be done by paying off highest interest rates first, but that made it too hard to get wins right away, ergo many jumped off the bandwagon and gave up.

The concept works like this: While making minimum payments on everything else, pay off your smallest debt first and as fast as you can. Use any extra money you can find or work for without borrowing and kill that smallest debt quickly. Then, when it’s paid off, take the amount you were paying on that debt, and add it to what your minimum payment was on the second one…then kill that one as fast as you can. Then you take the money you were paying on the second one and the first one, and apply it to the minimum balance of the third one on the list, and so on.

I’ve heard of this, but I guess driving my car and listening to an audio book made me a more captive audience this time. That process sounds so simple, I wondered what it would actually look like on a timeline.

Assume a person had the following debts:

1. \$1200 Car (\$225/mth)
2. \$4000 Car (\$225/mth)
3. \$6000 Credit Card (\$150/mth)
4. \$7000 Personal load (\$250/mth)

I just made up 4 things here that seemed like legit numbers people might be dealing with. Okay, so here we go. Let’s say this person starts this on January 1st, and finds enough extra money to kill that first one by February 28th.

So that \$225 would be added to the original minimum payment of \$225 for the \$4000 car loan. (\$4000-\$225-\$225)/\$450= 7.88 months. So basically, the second one could be killed before September 1…and that’s just combining two monthly payments, that’s not counting any additional money being added to that. So it COULD be done faster.

So on September 1 you start paying \$600 per month on that credit card, which at this point should be paid down to \$4650. This would be paid off no later than May the next year. So take note, that using these numbers, it only took about 16 months to kill 75% of the debt.

This would get awesome at this point. So now, your \$7000 loan has been paid down to \$3000, and you’re getting ready to start slinging \$850 at that bad boy…without factoring in any extra money you find or work for, you become debt-free (excluding a mortgage maybe…that’s a different topic for a different time) only 3.5 months later. So around middle September…so around 21 months to accomplish this, OR FASTER depending on how crazy you get with creating more liquid cash to throw at this debt. That’s less than two years….it’s not that long.

So if you’ve ever heard this term, it’s legit. If those numbers above resemble anything remotely close to debt you have – if you get serious you can kill all that debt in less than 2 years.

Just for fun – because I feel like I always have to do this. Assume after you were debt free, you invested that \$850 in a mutual fund that grew at 7% annually. In 20 years, you would have almost \$500,000.00! Think about that – perhaps it’s time to make some changes.

If you thought this was interesting, please like, share, and subscribe so you don’t miss any future helpful tips or hacks. Thanks for your time and interest.