How to Calculate Your Snowball Debt
If you are considering the debt snowball method, you can easily implement it within 30 minutes. Here’s a step-by-step guide on how to calculate your snowball debt and establish a debt payment plan:
Find the Total of Each of Your Debt Accounts
Begin by creating a list of all your debt accounts, such as student loans, auto loans, personal loans, and credit card debt. Exclude mortgages from the debt snowball method. Check the current balance on each debt to determine which one to tackle first based on the lowest dollar amount balance.
For 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
Check the interest rate for each debt account. While the snowball method does not prioritize payments based on interest, it can impact total balances and monthly payment amounts.
| 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
Set a payment schedule based on the information gathered. Begin by targeting the smallest debt, which in this case is the car loan. Make minimum payments on all loans and channel extra funds towards paying off 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
After clearing the smallest debt, move on to the next one. Once the car loan is paid off, redirect the extra money towards paying off the credit card. Continue this process until all debts are cleared.
| 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 a powerful way to eliminate debt and improve your financial health. By consistently paying off debts starting with the smallest balance, you can build momentum and work towards becoming debt-free. Additionally, consider other debt reduction strategies such as debt consolidation or refinancing options.
Regardless of the approach you choose, reducing debt plays a crucial role in enhancing your money management skills and overall financial well-being. To further your financial education, explore investment opportunities and multiple income streams with resources like the “I Will Teach You to Be Rich” book.
