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 looks at Filipino workers in his company when it comes to managing their own finances. He said that he stopped their operations in the Philippines and stopped hiring Filipinos in their company because of these workers’ attitude towards money.

I am sure that it is not only those workers but most people, me included have made stupid decisions in our lives. We are compulsive shoppers with so many wants; buying things we thought can impress people we don’t really want.  We hate delayed gratification; always saying to ourselves, “I deserve this so why should I wait if I 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 right now because you know that after all these pretentious acts, you have bills to pay? This is the real question that you have to ask yourself. 

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 is 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 even ask, He knows already our needs.

Why did I keep on putting my trust in 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 for 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 to 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

Examples of Debts to Include in The Debt Snowball?

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

Below is an example of the debts we were paying when we started the debt snowball method (so horrifying): 

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

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 the rest of our debts. 

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. 

Track Payment Progress with FREE Printable Debt Snowball Payment Tracker

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 spreadsheets that you like in tracking your progress. You can also get your FREE Printable Debt Snowball Payment Tracker by filling out the form below. 

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 of 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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