Snowballing Debt


Those of us who’ve been blessed with living in places that have occasional snow are probably all familiar with the process for making a snowman. First we form a snowball. Then we set it down and start rolling it around the yard. It gradually grows to the size we need for the bottom half. Then we repeat the process for the upper body and the head and put each part on top of the one that goes beneath it.

A very clever and successful process if the snow is the right kind.

But what happens if we roll a snowball until it gets too large to pick up, much less to set on top of another oversized snowball? It just sits there and frustrates us…unless we choose to pare it down to a more workable size.

Debt–credit cards, especially–is very much like that. It’s easy enough to keep our charging under control at first. But too many people just keep rolling that snowball until it becomes unmanageable. I wonder how many of them keep charging more and more and only make the minimum payment each month. It’s too easy to do.

And then they wonder whether they’ll ever get out from under the debt they’re accumulating. It’s a sad story, isn’t it? I hope it’s not yours.

But if it is, financial expert Dave Ramsey–I highly recommend his “Financial Peace University”–has some tips that really help. I want to focus on the one that helped my wife and me zero out our total debt in two years. (No credit cards, though; we’ve paid those off each month for a number of years.)

Dave calls this method “snowballing.” Interesting that he could take the word commonly used to describe debt that’s out of control and use it to describe the solution.

You start by listing your debts in ascending order of the unpaid balance. For example, suppose you have the following scenario:

  1. Car #1:  $2,000 still owed (payment $400)
  2. Car #2: $8,000 still owed (payment $400)
  3. College Loan: $12,000  still owed (payment $350)

Then you add some of your unbudgeted income–you may need to cut out some non-essentials to do that–to the normal payment. Let’s say you pay an extra $200 a month on Car #1, making a total of $600. You will have paid off that car in four months rather than five. Not a major difference, but you’re heading in the right direction.

Then you add the $600 you’d been paying on Car #1 to your payments for Car #2–a total of $1000 per month. Car #2 will be paid for in eight months rather than twenty. Now that’s a difference worth getting excited about.

And, finally, you add that $1000 to the $350 for the college loan for a total monthly payment of $1350. What would’ve taken thirty-five months to pay off is zeroed out in just nine months!

Can you believe it? You have gotten out of debt, reducing $22,000 to zero in twenty-one months rather than having your debt keep dragging you down for sixty months.

It takes discipline, though, and to many of us discipline is a dirty word. But–if debt is a problem for you–which is worse, doing without enough of your wants to put a cap on your debt and work on reducing it systematically or getting more and more of the things you don’t need and watching your debt snowball further out of control?

My wife and I definitely prefer Dave Ramsey’s kind of snowball.

What do you think? How about leaving a comment?


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Best regards,

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