The Debt Snowball–Becoming Debt-Free As Quickly As Possible

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In the last post, Jobs Pay Off Debt To Start You Building Your Business, we talked about paying off debt using your job.  In this post, it will show how to pay off your debt as quickly as possible using something called “the debt snowball”.

So what exactly is the debt snowball?  Imagine you’re on a mountain of debt.  You throw a small snowball down the mountain and as it rolls down the mountain, the snowball gets bigger and bigger.  So let’s say you have three credit cards, a personal loan, and a car note.  It will look a little like this with numbers

Let’s say you have a part-time job and you are making an extra $400 a month.  Here’s a breakdown of  each piece of debt:

  • Credit card #1- Minimum payment $25, Balance $700
  • Credit card #2- Minimum payment $100, Balance $4,000
  • Credit Card #3- Minimum payment $150, Balance $4,700
  • Personal Loan- Monthly payment $300, Loan amount $8,000
  • Car Note- Monthly payment $250, Car Loan amount $11,000

You will be paying the minimum on each debt, but for credit card #1, you will pay the minimum payment $25 plus the $400 from your part-time job.  You will keep doing that until your Credit card #1 is paid off.

Once you pay off Credit card #1, you take the minimum payment you would have been paying on Credit card #1 and add it to the extra $400 a month.  So instead of paying an extra $400 a month on Credit card #2, you will be paying:

-The minimum on all your other debts

-For Credit card #2, you will pay the minimum payment $100 plus the $400 from your part-time job, and the $25 that were paying on Credit card #1

So as you pay off a debt, you will take the minimum balance from that debt and add it to the extra $400 a month and the previous debt.  As you go down the line, you will notice that you are paying off the debt more quickly than you would have been paying it if you were only using the extra $400 a month.  Here’s a breakdown of how that would look:

Credit card #1, you paid the minimum payment of $25 plus the $400.

When Credit card #1 was paid off, you took the minimum payment you were paying and carried it over to Credit card #2, along with the extra $400 a month.

Credit card #2, you paid the minimum payment of $100 plus the $25 from Credit card #1, and the extra $400.

Once Credit card #2 is paid off, you carry over the minimum payment from Credit card #1($25) and #2 ($100), along with the extra $400 and start paying off Credit card #3.

Credit card #3, you paid the minimum payment $150, plus the minimum payment from Credit card #2 ($100), the minimum payment from Credit card #1 ($25), and the extra $400 a month.




Once Credit card #3 is paid off, you start attacking the personal loan with the extra $400 a month and the minimum payment from Credit card #1 ($25), Credit card #2 ($100), and Credit card #3 ($150), plus the monthly payment for the personal loan ($300). 

Once the personal loan is paid off, you destroy the final debt, which is your Car note.  You use the extra $400, along with the minimum payment from Credit card #1 ($25), Credit card #2 ($100), Credit card #3 ($150), the personal loan ($300), and the car note payment ($250).

Keep in mind that you will still be paying the minimum payment on each debt, but you will be focusing on using the extra money to pay off one debt at a time. As you look at the numbers, you see that the amount of money you attack each debt grows after you pay off each debt.   That “snowball” grows after it rolls down the mountain of debt.  Once you pay off all your debts, you have freed up all that cash flow and can start building your business by taking out a small business loan and using the extra cash flow to start paying off the loan.  When your business makes money, you can add a portion of that money (or all of it) to accelerate the paying off of that loan.  Once that loan is paid off, you can keep doing this to grow your business until you can quit your job and your part-time job to focus on your business.

This may seem scary but not if you have a solid foundation of real confidence.  Having the mindset to destroy your debts to build your future empire requires getting over the fear and just doing it.   Learn how to get this solid foundation of confidence by clicking the link below.

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