As the year winds to a close and we shift our attention to the new year that’s about to begin, the next few weeks may be the right time to assess our existing financial situations and consider what new plans we’d like to implement for the following year. For many Americans, one of those plans could be to finally get debt-free.  

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Welcome to Money Tip Tuesday from the Making Money Personal podcast.  

Getting out of debt is a noble goal, one worth pushing towards. If you’re feeling the burden of debt, one very effective method can help you pay down that debt and reach financial success. But when it comes to this venture, where does one start? How do you know the plan will be a success? That’s what this debt snowball method is for.   

In this tip, I’ll explain the debt snowball, how to use it to eliminate debt, and share a few additional thoughts to keep in mind while following the plan.  

One of the biggest challenges many people face when paying down multiple debts is determining which debts take priority. Do you pay off the oldest debt first? The largest debt first? A certain type of debt first? This often paralyzing decision can make it hard to advance toward the goal. Juggling different bills with varying balances can be tricky to organize, so you need a solid and practical plan to focus on and eventually eliminate debt.   

That’s where this plan comes in. The debt snowball works by organizing your payoff plan to pay down your lowest debt first, then using that freed-up cash to put towards the next largest balance, and so on.   

Start by putting all your debts in order by total balance from smallest to largest. Then focus on making larger payments to the smallest debt while making only the minimum payments on the other ones.  

For example: If you have three debt balances, one for $3,000, one for $8,000, and one for $10,000, focus on paying more towards the 3K one and pay just the minimums for the 8k and 10k ones. Keep paying your bills this way until that lowest debt is completely paid off.  

With one debt gone and out of the way, take all the money you were paying towards it and now put it towards the $8k one, continuing to pay the minimums on that $10k debt.   

Keep doing this until the 8K bill is gone.  Then, put all that freed-up cash from both eliminated debts towards that last 10k debt.   

The effectiveness of this strategy is that it increasingly builds your cash contributions towards debt every time one balance is paid. So, by the time you’re on that last debt, you’re shoveling money at that balance, and it will decrease at a more rapid pace. 

For anyone prepping to give this a go, here are a few things to keep in mind when you work your own debt snowball:  

For a deeper explanation of paying down debt and a visual walkthrough of the debt snowball method, check out our Paying Down Debt webinar and our Debt Snowball Method video clip on our YouTube channel.   

If there are any other tips or topics you'd like us to cover, let us know at [email protected], and don't forget to like and follow our Making Money Personal FB page and look for our sponsor, Triangle Credit Union, on Instagram and LinkedIn to share your thoughts.   

Thanks for listening to today's Money Tip Tuesday. Check out our other tips and episodes on the Making Money Personal podcast.   

Have a great day!