I grew up in Kentucky, so snow was never a guarantee in the wintertime. When our town did get blanketed by the stuff, school was canceled and the neighborhood kids took to the backyard. We’d be out in that white fluff until our fingers went numb, mostly battling it out in snowball fights. Sometimes, though, we’d build a snowman. We’d pack some snow into a ball, and then roll it through the yard. That tiny ball transformed into a snow boulder as it gained more and more mass.

That’s exactly how the debt snowball works.

The debt snowball is one of the most important tools for you to use so you can fully enjoy your retirement dream. Getting started is simple. Sticking to it is the hard part. Only you can provide the determination and drive to make it happen.

Your Debt Snowball

First, list your debts smallest to largest by the amount owed (except for your house payment). Don’t worry about interest rates, even if one debt has a 2% rate and another has a 22% rate. Once you have your debts listed, pay the minimum payment on all of them except the smallest one. Attack that debt with a vengeance. Sell stuff. Cut out the fancy coffees. Eat at home. We’re talking intense, get-this-thing-out-of-my-life-forever grit.

Once you’ve paid off the smallest debt, take the money you were putting toward that debt, plus any extra money you find, and attack the next smallest debt on the list. Once it’s gone, take those first two payments (from the two debts you’ve paid off), combine them, and go to the next debt. As you knock them out one by one, you’ll gain momentum.

When you ditch the small debt first, you see progress. That one debt is out of your life forever. Soon the second debt will follow, then the next. When you see that the plan is working, you’ll stick to it. By sticking to it, you’ll eventually succeed in becoming debt-free!

Debt Snowball in Action

Here’s an example. Let’s say you have the following debts and minimum monthly payments:

$550 medical bill ($50 payment)

$2,500 credit card debt ($63 payment)

$7,000 car loan ($135 payment)

$10,000 student loan ($96 payment)

List the debts in that order—smallest to largest. (Yes, ignore the interest rates.) The only exception to the debt order is if one of your debts is to the IRS. You don’t want them in your life, so if you have a tax bill, move it up in priority. Once it’s gone, go back to the debt snowball like normal.

Start by making the minimum payment on everything but the medical bill. Since it’s the smallest debt, you’ll want to throw every dollar you can at that first. Let’s say you pull together an additional $500 a month by taking an extra job, slashing your lifestyle to nothing, and going crazy with budgeting. That’s very doable—but it will take sacrifice! Using that $500, jumpstart your debt snowball and pay off your medical bill in just one month’s time.

After you’ve paid off your smallest debt (congratulations!), apply that $550 (the $50 payment plus the $500 extra) to the next debt on your list—the credit card debt. You’ll be paying $613 on the plastic (the freed-up $550 plus the $63 minimum payment) every month until that debt is gone. In about four months, say goodbye to the credit card. You’ll have paid it off!

After that, you’ll be ready to hit the car debt. Punch that car payment in the face to the tune of $748 a month (the $613 plus your minimum car payment of $135). In 10 months, the debt will drive off into the sunset! Once you get to the student loan, you’ll be able to put $844 a month toward it. At that rate, it’ll only take about 12 months to pay it off completely. Sallie Mae better get used to living somewhere else, because you’ll have kicked her out!

Thanks to your hard work and sacrifice, you will have paid off $20,050 in debt in only 27 months using the debt snowball! Will the months of hard work be worth it? Absolutely!

The Behavior Behind the Snowball

The debt snowball changes the way you behave with your money. In our example, if you were to start paying the student loan first because it’s the largest debt, you wouldn’t see it leave for a while. You’d see numbers going down on a page, but that’s it. Pretty soon, you’d lose steam and stop paying extra.

The debt snowball changes your behavior because of the quick emotional payoff that comes from getting some debt off your plate. By the time you’re contributing toward the bigger debts, you have so much more cash freed up from paying off the earlier debts that it creates a “snowball” effect.

Once you’re debt-free, imagine how much money you could be putting away for retirement! You can push toward your retirement dream and the legacy you want to leave behind. But it all begins and ends with you. The debt snowball will only work if you stay determined and make it happen!

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