Snowball Payments to Get Out of Debt

Years ago, a good friend of mine and I were discussing finances. I was a newly single mom, and was feeling overwhelmed by the prospect of trying to pay my bills. My friend told me how she handled those bills that are payments (not regular monthly bills, but things like furniture payments, car fixits, medical bills, car payments, etc.). By organizing and paying them as follows, you will be surprised how quickly they can be paid off!


First of all, figure out your budget. How much is each payment? List the debts in order from smallest to largest. Make payments to each, EVERY month. List the following information:

Do this for each bill.

  1. Make the largest possible payment to the first bill (which has the lowest balance), as well as the normal payments for the rest of the bills. As soon as that first bill is paid off, draw a line through it and mark it as paid. Psychologically, that is a real boost to see the progress you're making.

  2. Now apply THAT payment to the next bill on the list, in addition to the regular payment. (Example: If you are making $25 payments on each of five bills, and you just paid off the bill at the top of the list, now apply THAT $25 payment to the second bill. Now the bill at the top of the list (in this case, No. 2), is now getting $50 per month, and the rest are still getting $25). Because the payment is currently double, obviously that bill will get paid off more quickly, and you can cross that one off.

  3. Repeat this pattern down the list, now that two are paid off, the next bill payment for Bill Number 3 is $75. By being disciplined in paying the bills in this fashion, you will be surprised how quickly you can knock off these bills and how much faster your stress level drops!

By paying the bills in this way, when one is paid off, you can make progress very quickly on the list of bills, without changing your budget/spending. It's very easy when a bill is paid off, to simply incorporate that money into the spending. By exercising discipline in paying the bills off in this way, when you get all the bills paid off, you can now put the money into savings, which was previously spent on these "one-time bills!

I hope this system of bill paying helps others who are struggling with finances! I have found that most people are good about working with a person if they receive regular payments. This way, everyone gets a little something, and the top bill on the list gets the most. By the time you get to the bottom of the list, you can make a hefty payment instead of the $25 (or whatever) you previously were able to make! Good luck!

Source: Another single mom struggling to make ends meet!

By Pam T from Storm Lake, IA

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ThriftyFun is one of the longest running frugal living communities on the Internet. These are archives of older discussions.

March 18, 2010

These tips are for getting out of debt. I came across the snowball tip when listening to Dave Ramsey, so I can't take full credit.

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