Debt-freedom, Finances

How to Pay Off Debt Fast with Debt Snowball Method

 

No matter how much they earn, they spend two times of their income and then they are not left with anything as most of their salary goes in paying debts.”

This is how a foreign CEO look at Filipinos when it comes to managing our finances. He said that he stopped their operations in the Philippines and stopped hiring Filipinos in their company because of his Filipino workers’ attitude towards money.

I am sure that not only Filipinos but most people, me included have made stupid decisions in our lives. We are compulsive shoppers with so many wants; buying things we thought that can impress people we don’t really want.  We hate delayed gratification; always saying to ourselves, why wait if we can have it now with 0% interest?

But the real question to ask yourself after buying all of these things through all of these debts, after being flashy in social media, living a fake life just to keep up with others is: am I really happy? Well, are you really happy, as in really happy or you are stressed because you know that after all these pretentious acts, you have bills to pay?

To be honest, for quite some time, debt has become part of our lives up to the point that it was already occupying a room in our house. Do you know what I mean? We thought that being in debt is just normal since our family, relatives, friends, and colleagues are also in debt. We felt we belong in the society because we too, are in debt and we can afford the monthly payments for our debts.

The Turning Point

But through God’s Word in my daily devotion, God spoke that being in debt is not His plan for our family. It’s finished, He said! He paid the price on the cross for our freedom from anything including debt. He wants me and my family to live a free and happy life, to have a better future as He has promised me in the book of Jeremiah.

At that moment I realized that if this is what God is telling me, why do I want to be under the bondage of debt?

God is so good! That was our turning point, mine personally. He is our great provider. Before we ask, He knows our need.

Why do I keep on putting my trust on credit cards and loans to provide for us without even asking God about our needs and doing an effort of living a more disciplined life? I mean seriously? I was so stupid! But praise God, I know better now.

So today, in gratitude of what God has done and is doing for our family, I’ll show you a method of paying off your debt fast that worked for our family, The Debt Snowball Method. I hope that this can be of help to you as well. I don’t know if you are familiar with it but I heard it first from Dave Ramsey, a financial guru who loves helping people to get out of debt.

What is The Debt Snowball Method?

A debt snowball is a method of paying off debt with the smallest remaining balance first and then paying off the larger ones next. You will start by paying as much as you can on the smallest debt and paying the minimum on the rest. After you paid the smallest one, then you will use the money that you were paying the smallest one and add it to the payment of the larger debt next in line.

 

Why The Debt Snowball Method is the Best?

As for our family, the debt snowball method is the best because it changed our attitude towards debt. After we paid the smallest debt first, little by little we were building that momentum, that intensity to pay all our debts over time. It gave us quick wins and we became so addicted in the feeling of winning against our debts that we attacked every debt after the smallest one with intensity and gigil ( strong urge ).

The math seems to lean more toward paying the highest interest debts first, but what I have learned is that personal finance is 20% head knowledge and 80% behavior. You need some quick wins in order to stay pumped enough to get out of debt completely.” – Dave Ramsey

What Debts to Include in The Debt Snowball?

All non-mortgaged debts should be included in the debt snowball. Below is the list of the examples. 

  • Personal Loans
  • Credit Card Debts
  • The money you owe other people
  • Student Loans
  • Car Loans
  • Salary Loans
  • Medical Bills
  • Etc.

How to Start the Debt Snowball?

Debt Snowball is simple. Just follow the steps below. 

Step 1. List all your debts from smallest to the largest remaining balance

Example: 

  1. BDO Car Loan – P 65,000 remaining balance
  2. BPI Personal Loan – P 85,000 remaining balance
  3. Citibank Credit Card –P 90,000 remaining balance
  4. BPI Credit Card (Mine) – P 98,000 remaining balance
  5. Citibank Personal Loan 1 – P 175,000 remaining balance
  6. BPI Credit Card (Hubby)-  P 167,000 remaining balance
  7. Citibank Personal Loan 2 – P 395,000 remaining balance

 

Step 2. Figure out the minimum amount that you need to pay for each debt every month

Example: 

  1. BDO Car Loan – P 16,000
  2. BPI Personal Loan – P 5,366.80
  3. Citibank Credit Card –P 2,000
  4. BPI Credit Card (Mine) – P 2,000
  5. Citibank Personal Loan 1 – P 10,865.90
  6. BPI Credit Card (Hubby)-  P 2,000
  7. Citibank Personal Loan 2 – P 15,982.50
  1.  

Step 3. Allocate a certain amount of money from your monthly budget to pay off your debt

In our monthly budget, we allocated P 55,000 to pay our debts. That’s the maximum amount that we can slash from our budget so we can pay our debts and at the same time making sure that all our basic needs are met. 

Step 4. Pay off the smallest debt first

Attack with intensity the debt with the smallest balance first while paying the minimum on larger debts. 

Example: 

  1. BDO Car Loan – P 16,000 + P 784.80 (Extra)
  2. BPI Personal Loan – P 5,366.80
  3. Citibank Credit Card –P 2,000
  4. BPI Credit Card (Mine) – P 2,000
  5. Citibank Personal Loan 1 – P 10,865.90
  6. BPI Credit Card (Hubby)-  P 2,000
  7. Citibank Personal Loan 2 – P 15,982.50

Step 5. Snowball on the Next Debt in line

After paying off the smallest debt, we focused on the next debt on our list. We took the amount we were paying on our BDO Car Loan and put it towards our BPI Personal Loan. 

Example: 

  1. BDO Car Loan – paid
  2. BPI Personal Loan – P 5,366.80 + P 16, 784.80 (Snowball payment)
  3. Citibank Credit Card –P 2,000
  4. BPI Credit Card (Mine) – P 2,000
  5. Citibank Personal Loan 1 – P 10,865.90
  6. BPI Credit Card (Hubby)-  P 2,000
  7. Citibank Personal Loan 2 – P 15,982.50

After paying off BPI Personal Loan, we attacked Citibank Credit Card next. 

Example: 

  1. BDO Car Loan – paid
  2. BPI Personal Loan – paid
  3. Citibank Credit Card –P 2,000 + P 22, 151.60 (Snowball payment)
  4. BPI Credit Card (Mine) – P 2,000
  5. Citibank Personal Loan 1 – P 10,865.90
  6. BPI Credit Card (Hubby)-  P 2,000
  7. Citibank Personal Loan 2 – P 15,982.50

We did the same process for BPI Credit Card (Mine) and Citibank Personal Loan 1. Now, we are soon to finish BPI Credit Card (Hubby) and last but not the least is Citibank Personal Loan 2. 

During the process of paying off, I keep on telling our debts, ” you are all going down, debts! Though you are big, I have a BIGGER God with me!” As you can see, they obey. Faith and hope are really vital when paying off your debt. Sometimes in your journey, you will feel as though you only see darkness but these two things will give you that spark of light that will fuel you to keep on keeping on. Just trust God that He will deliver you from all of your debts because He is always faithful even if you are not. He loves you very much. 

Just make that decision that no matter what, you are not going back to being in debt, never again. 

How to Track Progress

In our journey to debt-freedom, we track our progress to keep our energy and motivation up. Sometimes you just need to see how quickly you could become debt-free so you can build that momentum that can help you finish all your debts.  

You can use any application or spreadsheet that you like in tracking your progress. But our family is using Undebtit. It is a free, mobile-friendly debt snowball calculator that generates an easy-to-follow payment plan- so you can finally eliminate your debt. 

To wrap it up, when using the Debt Snowball method in paying off debt fast, you need to list all your debts, from smallest to largest. Then, you need to figure out the minimum amount that you need to pay for each debt every month. Allocate a certain amount of money from your monthly budget to pay off your debt. Pay off the smallest debt first and then snowball on the debt next in line.

If you have a different method on paying off your debt fast, feel free to share it with us by writing in the comment box. I know a lot of people will also learn from your own experience.

Love lots,

 

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2 Comments

  1. Thank you for sharing. It is very encouraging. It is true that financial management is mainly heart work and mindset. God bless you for sharing your journey.

    1. Hello Michelle,

      Thank you also for visiting my website and for reading my post. I hope that in my own little way, I can give hope and encouragement to others who are struggling financially especially those with debts. God bless you din 🙂

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