How do I calculate my snowball debt?

The debt snowball method is a system that focuses on paying off debts with the lowest balance first. The idea is that you will be able to settle your smallest debts as quickly as possible. This enables a quick profit that can keep you motivated to keep paying off your debt. Once you’ve paid the smallest debt, focus on the next smallest debt.

This is a popular and effective approach to to pay off a debt. Although mortgage loans are excluded, the debt snowball method can generally be applied to all types of liabilities, including auto loans, Student Loans, Credit card statements and more. Learn more about how it works and how you can implement it below.

What is the Debt Snowball Method?

The snowball method is a debt settlement strategy that involves paying off your smallest debt first. Every month you would be paying the minimum payment on all of your debts. Then any extra money you have left for extra payments will go towards the lowest balance debt. This will be the simplest debt to be paid first. Once you have paid it off, move on to the debt with the next lower balance.

Who is the debt snowball method ideal for?

From auto loans to personal loans, it is almost inevitable to go into debt at some point in your life. Chances are, you have more than one type of debt that you need to make monthly payments for. The snowball debt repayment method is great for people who have multiple types of debts with different balances. You can use it to prioritize your debts so that you easily know which one to pay first.

The debt snowball method has a few key benefits that make it popular with people trying to reduce debt:

• Motivating: Having multiple liabilities is both financially onerous and stressful. The debt snowball method can help you reduce your debt list quickly. You will then be inspired to move on. It’s a great way to avoid feeling stuck in a debt moat and get rid of the feeling of “just keeping your head above water”.
• Easy to implement: The debt snowball method is straightforward and simple. All you have to do is make a list of all of your debts and their balances, find the lowest, and then focus on paying them off. You don’t have to worry about calculating the annual percentage rate (APR).
• Strengthening: By being able to efficiently reduce your list of debt securities, the debt snowball method can be very empowering. You will feel like you are in control of your financial health (because you are)! That can help Eliminate money fears and anxieties, brings you peace of mind.

The psychological benefit is one of the greatest advantages of the snowball approach, but the method has disadvantages. For example, by prioritizing the smallest debts over the highest total interest, you will grow your high-interest debt and potentially end up paying back a larger total amount to lenders. It can also mean it takes longer to get out of debt.

However, the key to success is finding a strategy that works for you. Compared to the debt snowball method, other approaches – such as the debt avalanche method, which tackles high-interest debt first – may make more sense from a numerical point of view.

Since you are paying off debt with the highest interest rates first, you are likely to be paying less, by and large. Paying off debt isn’t just a numbers game, however. It’s a psychological game too – and this is where the debt snowball method wins big points. Read on to find out how you can make it work for you.

How to Calculate Your Snowball Debt

Do You Think The Debt Snowball Method Might Be Right For You? You can implement it right away. It should take you no more than 30 minutes to calculate your snowball debt and set up a debt settlement plan. How to do it.

Find the total amount of each of your debt accounts

Start by making a list of all of your debt accounts. These can 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 for each of your debts. This will help you determine the first debt to deal with (the one with the lowest dollar amount).

Here is a simple example:

Type of loanCurrent account balanceSchool Loan $ 25,000Car Loan $ 5,000Credit Card $ 10,000

Find the interest rate for each of your debt accounts

Next, check the interest rate on each of your debt accounts. While the Snowball Method does not prioritize a payment schedule based on interest, it can still affect the total balance of your accounts and the monthly payment amount. To continue with the example above, it could look like this:

Type of loanCurrent account balanceAPRSchool Loan $ 25,0003.99% Car Loan $ 5,00012% Credit Card $ 10,00016%

Focus on paying off the smallest debt account first

The information above will help you set a payment schedule and determine which creditor to pay first. Since your car loan is the smallest, start here. After you have made the minimum monthly payment for each of your loans, put in your extra cash on the car loan.

Type of loanCurrent account balanceAPRDebt Loan $ 25,000 3.99%Car loan *$ 5,00012%Credit Card $ 10,00016%

Always apply payments to the next lower balance

Once you’ve paid the smallest debt, move on to the next. In that case, once you get the car loan, you will be transferring the extra money you spent on that debt each month and now using it to pay off your credit card. Once those debts are paid off, you will be tackling this pesky student loan.

Type of loanCurrent account balanceAPRDebt Loan $ 25,000 3.99%Credit card*$ 10,00016%

Your financial future starts with you

The snowball method is an effective way to pay off debts. Eliminating your smallest balance quickly and then moving on to the next debt can be a great motivation and empower you to continue on your path to debt free. There are also other approaches to debt reduction that you can explore such as: Debt consolidation or refinancing options.

Whichever route you choose, eliminating debt is a valuable component in improving your money management and overall financial health. A holistic approach to greater financial freedom also includes investing your money in ways that will work for you and earning more, ideally from a variety of sources of income. You can find out how all of this works with the book “I will teach you to be rich”.

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