How to use the debt snowball method

Hello, hello and welcome to Greedy Bitch a podcast where groomers stop apologizing for charging their worth. I'm your host River Lee, founder of the Savvy Groomer. This episode is sponsored by Personal Finance on a leash, a 12 module masterclass where we teach you all about your personal finances. Let's go ahead and talk about today's topic, how to use the debt snowball method.

 

This week's topic is all about how to use a debt snowball to pay off debt. You're in over your head in debt and it doesn't feel good. You need the money to start your business and eventually to cover your daily living expenses. It was the only way to get by. Now you're faced with this ridiculous debt. What do you do? Ignoring it doesn't work.

 

It's not going anywhere. Making minimum payments doesn't help. Your credit score doesn't suffer because you made the minimum payments, but your pocketbook suffers interest, charges accumulate at crazy rates and before you know it, you feel buried. So now what? Try the debt snowball method. It's an organized and proven way to get yourself out of debt. It offers quick wins that create motivation and it will eventually get you out of debt.

 

Here is how it works. So you might be asking, what is the debt snowball method? The debt snowball method is a strategy to reduce your debt in an organized manner. If you're tired of trying to figure out which bill to payoff first, this is a great way to figure it out. This method focuses on all of your debts in order of balance, but not interest rates. Arrange your debts from the smallest to the largest balance. Focusing on the bill with the smallest balance first. This method focuses on intention. You pay all your bills, but you focus on the first bill in line. After you pay off the first debt, celebrate your victory, you paid your debt off and you showed your money how to work.

 

It's the first step to financial freedom. Alright, but how does the debt snowball method work? Start by grabbing your statements of all your credit cards and bills and use the following steps. Order your bills from smalls to largest balance and don't look at your interest rate. You may have bills with high APRs first, last, or somewhere in the middle. It doesn't matter.

 

Budget the minimum payment for each bill into your fixed expenses. Make these payments on time every month. Figure out how much extra money you have each month. If you don't have a budget, now is a great time to start. I personally love zero based budgets because they give every dollar a job. Take the extra money and pay it towards the first bill in line.

 

This is in addition to the minimum required payment. Keep paying extra money to the first debt in line until it's paid off in full. Then celebrate your victory. But mindfully, take the full amount you paid to the first debt, including the minimum payment, and add it to the minimum payment of the next debt in line. Keep going until you've paid off all your debt.

 

All right, how to find extra money. Here's where many people struggle. They assume they don't have any extra money, so the debt snowball method won't work for them, but everyone has extra money. You just have to know where to find it. Here are a few ways. Host a garage sale or sell some items you no longer need. Facebook market, Craigslist, Poshmark, eBays are all great. We all have like 30 pairs of scissors in our drawer that we haven't touched ever. Put them up on Facebook marketplace. Have another groomer who wants them. Start a side hustle if you can. If you have a spare few minutes you could even if it's just answering market research surveys or use the cashback apps to save on your purchases.You can earn extra money that way. Switch insurance providers or negotiate lower rates with your current company. I know that I had been with a company that I really loved for about five years, but I'd never really shopped around and what I found out was that I was paying like triple the average rate in the area. Now, I still loved my insurance company, so I went to that company with these quotes and they actually cut my bill in half, so I got to stay with them. I was still paying more than I would've gotten the other companies, but it was a great compromise. Cut the cord already. If you haven't, I mean really. Who needs cable? When we have Netflix, Hulu, Disney Plus. Go ahead and switch bank accounts so you stop paying bank fees. I'm always shocked at how many of you guys have like $12 fees on your bank statement. It's not a lot of money, but when you look at it over the year, or if you have multiple accounts, it can get really pricey. Think about your current spending, where you can cut and how you can bring in those few extra dollars and put every dollar you earned towards your debt.

 

An example of the debt snowball method, right? So let's look at the debt snowball method like it was real life. You've created your budget and you've pulled in your statements here, right here, your following bills. So imagine a $300 credit card with a minimum payment of $20, $1,000 medical bill with an agreed minimum of $50, $2,200 credit card with a minimum payment of 75 $5,000 car loan with a minimum of two $57,000.

 

Student loan, minimum $150. All right? You budget the minimum payments, which is a total of $545, plus your other required expenses like mortgage, utilities, insurance, gas, food. After looking at your budget and realize you have an extra $220 each month, you could put towards your debt. Okay? So what's gonna happen there is you're gonna, the first month is you're gonna pay that $220 on the credit card with a $300 balance. That means it's gonna take you two months to pay that bidt in full, then celebrate. Next, you take the $220 and you add it to the $50 agreed upon minimum payment of your medical bill for a total of $270 per month. So then it's gonna take you four months to pay that debt in full.

 

You've knocked out two debts. Yay. Good job. Now we can move on to the $2,200 credit card. Paying the $345, which is the $270 plus $75 minimum payment each month. You keep doing this until you've paid all your debts in full. Since you've now aware of how to spend your money and the effort it takes to get outta debt, you may be able to stay out of debt. Is the debt snowball a good idea? Different methods work for different people, but the debt snowball method, it is a tried and true method for millions of people. If you can't organize your finances or figure out which debt to focus on, like which one to pay off first, this is a great way to get organized.

 

You know you exactly where your money should go and how to get out of debt. The method is great for people who thrive on quick wins. Paying off debt usually isn't quick fixes, which is why many people fall off the wagon, so to speak. They don't see progress and they hate sacrificing in other areas, so they go back to making minimum payments and staying in debt.

 

But the debt snowball method, organizing your debts rather in order of balance though, is a great way to see that you can pay off your debt. The goal is to keep the momentum going so you can pay off your larger debts too. Why the debt snowball method works, if you look at it realistically, the debt snowball method is just a way of organizing your money.

 

It's nothing extraordinary financially speaking, but it does create behavioral modification. If we are all creatures of habit and it sometimes works, you're likely to keep going, right? When you're just making minimum payments or making payment haphazardly, you don't see the method in the madness and you're likely to give up with the debt snowball method. It's a proven method and it becomes habit, almost like muscle memory. You see what you're capable of and you want more of it, almost like you're trying to lose weight. When you lose the first few pounds, you feel empowered, excited, and ready to lose more. This is the same as a, as this debt payoff strategy. All right? If that's not gonna work for you, here is another debt payoff strategy.

 

The debt snowball isn't the only method. The debt avalanche is another method, but it requires a significant more willpower. It doesn't provide the same quick win because you order your debts by interest rate from highest to lowest, not balance. The debt avalanche method is for people who wanna save more money on interest rather than pay off debts fast.

 

Then when you focus on that card debt with the highest interest rate, you decrease the amount of interest you'll pay. Overall, it uses the same idea, making minimum payments on each debt and focusing on the extra money of the first debt in line. When that first debt may have the largest balance, the smallest, or somewhere in between, you may pay the principle balance of that debt down.

 

You'll pay less interest over the debt lifetime, putting more money in your pocket. This method isn't for everyone. It takes a while, sometimes even more than a year to see progress. If you need motivation, you may not like this method because it takes more dedication in patients to see it through to the end. So I want you guys to get out of debt today.

 

It doesn't matter what, which debt and payoff methods you choose. The key is to get outta debt once and for all you. As you pay off your debt, stay mindful of your spending. Lock up your credit cards so you don't use them anymore. Only buy what you can afford in cash. Don't close your credit cards though. That hurts your credit score.

 

Keep them open and let the balances drop. The lower balances decrease your credit utilization ratio, which improves your credit score. If you keep up these habits, stick to the budget and don't get yourself in debt again. The debt snowball method could be the last time you have to deal with overwhelming debt again.

If you guys are interested in learning more about Personal Finance on a Leash, be sure to visit me at savvygroomer.com/enroll. This is a 12 module masterclass where we teach you how to get on a personal budget, learn how to work with your money, and change your relationship with money. Thank you all so much for listening to this podcast, How to use the debt snowball method. Be sure to visit me at savvygroomer.com to see my current opportunities to work with me growing your pet grooming business, plus more free resources for you to learn. See you at our community on Facebook Savvy Pet Professionals. As always guys, happy grooming!