Basically, everything you are about to read was maliciously stolen from Dave Ramsey and his book The Total Money Makeover. I just remove the Jesus stuff and replace it with a dash of humor. However, I strongly recommend you read his book and worship Jesus. Below, I will cover why you should get out of debt and how you can use the debt snowball to do it.

Why Debt Isn’t Cool

You might see your friends getting in debt and think it’s the cool thing to do. Sure, it feels good to fit in, and no one likes to be the odd man out, but winning with money is also cool. Believe me: I have a backward hat on. First of all, you put yourself at risk with debt. What if there is an emergency? How are you going to pay for it if your money is tied up in monthly payments?

Secondly, your debt is probably collecting interest. Even if it’s just 6.5% APR, that can add up to hundreds or even thousands of dollars extra that you pay over the course of your loan.

Lastly, the payments you make on your debts could go toward making sure you have a comfortable retirement. In other words, the debts you are paying with interest could be gaining positive interest in your investment portfolio.

Getting Ready for the Debt Snowball

Before you start your debt snowball, there are a few things you should do:

  • Cut up Your Credit Cards and Stop Taking on More Debt – This is like the first step in AA. Only, you are addicted to debt-ahol. Admit you are powerless over debt.
  • Create a Budget – You need to have a plan for your money.
  • Stop Saving for Retirement – Even if you have a company match, you need to focus on getting out of debt first. Pausing your retirement will also motivate you to get out of debt faster.
  • Sell that Car You Can’t Afford – If you can sell a car, boat, or other items that you still owe on and are unlikely to pay off in the next 24 months, then do it. You can always buy a beater in the meantime (and buy a nicer car with cash when you’re out of debt.)
  • Build up Your Emergency Fund – This will keep you from taking on more debt in an emergency.

Start Rolling that Snowball

The debt snowball involves you ordering your debts from smallest to largest based on the total amount currently owed (regardless of their APR.) You will pay the minimum amount on each of your debts. And, you will throw any extra money in your budget at the smallest debt first. Once you pay off that smallest debt, you will throw your muscle behind tackling the next smallest debt and so on.

My wife says I’m confusing AF and that I should give examples. Here’s an example of some debts ordered from smallest to largest:

  • $300 hospital bill ($30 monthly payment)
  • $3,000 car loan ($60 monthly payment)
  • $5,000 credit card debt ($125 monthly payment)
  • $100,006 student loan ($800 monthly payment)

Well, Dr. Student Loans, you would pay the minimum monthly payment on each of the above. And, as you are living on salted noodles, beans, rice, and dumpster seafood, you will throw extra money toward that hospital bill. So, if you have an extra $270 in your budget that first month, you can immediately pay off the bill and feel pretty good about yourself. The next month, you will then have an extra $30 (from the now-extinct hospital bill) to put toward the car loan. Once the car loan is gone, you’ll have the money that would have gone toward that to pay extra on the credit card and so on.

The Psychology behind the Snowball

The reason you pay off the smallest debt first rather than the largest APR (and thus the most expensive debt in the long run) is that we are focusing on changing your behavior and not on saving money.

You see, I hate to be the one to break it to you, but your outlandish behavior with money is what has gotten you into this debt mess. If you try to chip away at your $5,000 high-APR debt first, you’ll probably give up quickly. However, if you get that $300 debt squared away, you will have more money to throw at the larger debts, and more importantly, you will feel like you are making progress and can keep going.

You May Need to Pause

The sooner you get done, the sooner you can start saving for retirement again. And, you’ll have so much more money to put toward retirement. You’ll basically be living a rap video when you’re in your 70s.

There are some situations where you may need to stop rolling the debt snowball. For example, if you get knocked up, lose a leg, or lose a job, you should stockpile your money because you don’t know what expenses could be coming. After the urgent life event calms down a bit, then you can start up your snowball again.

Does any of this make sense? If not, please ask some questions below. I promise to give even more confusing answers.