How to Pay Off $60,000 in 3 Years with the Debt Snowball

how to use the debt snowball

Chances are you just read the title of this article and thought to yourself:

  1. What is the catch, or
  2. How could I possibly pay off $60,000 in 3 years?

Reading personal finance blogs and one book is actually how I learned about the infamous debt payoff strategy called the “Debt Snowball.”

In 2015 when my wife and I  started getting serious about our finances I kept hearing about this guy Dave… and I'm not talking about Dave from Wendy's. I am talking about Dave Ramsey.

Dave had this concept – the debt snowball – that was really simple to use. We had enough student loan debt to send 10 kids to college, so we said what the heck. 

Lauren and I decided to use Dave Ramsey's infamous debt snowball plan.

Here is how a hypothetical person could pay off $60,000 in 3 years… but first, what is the debt snowball anyways?

What is the debt snowball?

To quickly understand how the debt snowball works – just think of an actual snowball rolling down a hill. The more it rolls the bigger and faster it goes.

Now take that metaphor and apply it to your debt. The more debt you pay off the more money you have and the faster you can pay off your other debts.

The concept revolves around the idea that most people spray their money. In essence when you spray your money you are never attacking the principal amounts, therefore never paying down your debt as fast as possible.

An analogy I always use when explaining the concept is to imagine you have 6 fires to put out at one time with one hose. Is it better to keep each fire small but never put it out while spraying them all?

Or would you rather drown out one fire at a time, moving on from one to the next and with an added bonus of your hose doubling (More cash flow)?

The best answer is the latter.

So by using the debt snowball, a person basically lines up all of their debt from least to greatest by the principal. They then attack the smallest principal owed until it is paid off in full.

As you pay off debt items, take the freed-up cash and roll it into the next debt item. Wash, rinse, and repeat. 

Related: Quick Ways to Make Extra Money

How do you start a debt snowball payoff?

Start with a budget and some personal goals. 

In my budget post, I detail how just weeding out wasted spending will help the average person discover between $200-$800 in their budget, maybe even more.

You need to have a budget to really make the debt snowball effective and the reasoning behind this is that every dollar, every month is accounted for. This is commonly referred to as zero-based budgeting or every dollar has a name budgeting. 

If money just sits in your checking account, or even if you have gobs of money sitting in a savings account earning only 1%, you are losing money if you have debt (And factoring in 2-3% annual inflation). 

Step 1:  

debt snowball step 1

Open an excel sheet, write down all of your debt items in one column, then sort them from least to greatest. In the next column, include monthly minimum payment amounts and in third column interest rates.  

You can also use some of these methods that My Millennial Guide recommends for paying off debt on a low income!

Note: For student loans, break them down individually, even though you might make one lump sum payment each month, most student loan accounts are comprised of multiple small student loans.

Step 2:

debt snowball step 2

Decide/figure out how much extra money each month you can contribute to your debt snowball.

Simply take your budget and use your monthly income and subtract your fixed expenses. The number, also known as your net cash flow, is the number you should contribute to your debt snowball. See the example below. 

Step 3:

debt snowball step 3

Pay the extra as you get it. Online payments make it easy to allocate extra money to your debt. With most people getting paid twice a month, we figured out we could take a certain amount each time we got paid and put it towards the focus area.

Note: You can change things up if they offer more cash flow. While following the steps above is simple, if you want to accelerate the debt snowball you can use a different approach.

Instead of attacking loans with the lowest principal, instead, attack loans that would inject more cash flow into your monthly income. For example, by paying my car off quicker it freed up $185 whereas one of Lauren’s student loans, even though the principal balance was lower than the car, only freed up about $36. That is a $150 difference we can now use. 

All that being said, what would a debt snowball look like in use?

Using the Debt Snowball to Pay Off $60,000 in 36 Months

Let's use a sample couple, who has an extra $600 a month to contribute to their debt snowball. Maybe they cut their cable and gym membership, reduced their insurance rates and stopped eating out so much. 

They were able to produce a net cash flow of $600 which would then allow them to attack their debts with a debt snowball. Note, the hypothetical couple's debt amount of $60,000 outside their home was based off the 2017 debt averages

Hypothetical couple's debt: 

How to pay off debt with the debt snowball

Notice in the chart above, each amount owed is lined up from least to greatest. Based on the minimum payments and interest rates, in the far right columns, you see the debt snowball payoff amount.

With each debt item paid off in full, the debt snowball contribution amount increases. In the furthest right column, you see the “Months to pay off,” for each line item.

In this hypothetical scenario, pending no major changes or raises, in 40 months this couple paid off $60,000 worth of debt. They increased their monthly cash flow to almost $1,700. 

All of this started with just an extra $600. 

The debt snowball is powerful. It really boils down to not making money so complicated and understanding how to be intentional with your income. 

Use the Debt Snowball to Pay Off Your Mortgage 

Let's add a twist to the debt snowball. Let’s say this fictional couple rolls that freed up $1700 a month into a $200,000 mortgage. What would be the outcome of that scenario?

use debt snowball to payoff mortgage

As you can see in the sample amortization chart above, the same couple who started with an extra $600 a month would have an extra $3,000 a month in 10 years with no consumer, student, auto, or mortgage debt just by applying the debt snowball.

The total savings in mortgage interest would be $107,000 by paying off their traditional 30 years fixed-rate mortgage in 10 years. 

Related: How to Pay Off Your Mortgage With a HELOC

My Takeaway on the Debt Snowball.

It is amazing how starting with just an extra $600 and no financial raises can allow a couple to pay off all of their debt and mortgage in just 10 years.

Just think:

  • 25 year old would be debt & mortgage debt-free by 35
  • 30 year old would be debt & mortgage debt-free by 40
  • 35 year old would be debt & mortgage debt-free by 45

And so on. That once again, factors no raises or changes to income. Once the snowball gets rolling, it is actually simple to use and manage. 

Have a goal as to WHY you should pay off your debt using the debt snowball and write it down somewhere you see it.

This will help keep you on track and focused. For more information on paying off debt with over 5 different strategies other than the debt snowball, be sure to check out the Debt Pay Off Guide Book. 

Q: How fast could you pay off your debt?

Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $200,000 in student loans with his wife in less than four years, Josh started Money Life Wax and has been featured on Forbes, Business Insider, Huffington Post and more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their chocolate lab named Morgan, working out, helping others with their debt and recommend using Personal Capital to track your finances.