If you’ve been around here long, you know I want you out of debt. I don’t want you to reduce your debt – I want it gone. And we’re not talking about “eventually,” but ASAP. You also probably know I’m a huge Dave Ramsey fan. The man is a no-nonsense debt assassin. He keeps it simple and to the point so you can get started immediately on what he says to do. While I disagree with him on a few minor points, one where I am in lockstep with him is his advice to use the debt snowball. Today I’ll talk about why that’s the best and fastest way to get out of debt.
What is the Debt Snowball
Simply put, you organize all your debts, from smallest to largest, based on the total balance of each debt. Ignoring interest rates and almost everything else about the debts, you pay minimums on all bills except the smallest one. On the smallest debt, you put every extra penny you can scrape together to KILL it. Dave explains it a little differently in an article on his website, but I think you get the idea.
Why the Debt Snowball
Getting out of debt starts with having the right mindset about debt. If you’re one of these people who believe the argument that, “you’ll always have debt,” or, “a little debt is okay – you can manage it,” you’re not ready for this discussion. However, if you’re sick and tired of going to work every day just to pay bills you wish would just go away, you’re in the right place to fix this mess.
Imagine something with me: There are a bunch of bad guys coming at you in a dark alley and you can’t run away. Which one do you take out first? I’d just about bet you will focus on getting rid of the easiest target first. Your debts are those “bad guys.” With each bad guy that falls, you have less to worry about and the odds of surviving this fight tip more and more in your favor. Eventually, it is just you and one or two big, scary dudes. But hey, by that time you’ve beat a bunch of little guys, so you’ve gained confidence that you can do this!
What About Math?
Again stealing from Dave, if you were making your choices about debt based on math, you probably wouldn’t have gotten into debt in the first place. I understand there are probably many of you that know much more about the intricacies of math than I ever will, but can’t seem to pay off your student loans or credit cards. So instead of arguing the math, let’s focus on the root problem – behavior. No matter what got you into the debt (poor choices or bad circumstances), fixing this issue boils down to very simple math + very focused behavior.
Even though it doesn’t make mathematical sense, the debt snowball is the best method of paying off debt. Why? Thinking back to our “bad guys in a dark alley” example, the little guys will fall a lot faster than the big guys. And once they’re down, you never have to deal with them again. Looking at 20 bills and seeing each month that they all were a little smaller is all well and good, but how about looking at 20 bills this month, 19 next month, 17 the month after that, and 14 the month thereafter? That looks a lot better to me than only seeing balances shrink.
With all the complexities life has to offer, let’s keep paying off debt as simple as possible. Let’s remember our goal is to get OUT of debt, not to reduce it. The debt snowball is so simple, and yet it works.
Have you used the Debt Snowball?