Creating a debt snowball plan worksheet is as simple as entering a list of debts in the first column of the sheet, listing the debt with the smallest balance at the top, according to The Simple Dollar.Continue Reading
The debt snowball strategy may seem counterintuitive because instead of paying off high-interest debt first, the debt with the smallest balance is paid off, regardless of the interest rate. The snowball effect ensues as smaller balances are paid off and their collective payments applied to the next debt in the list, says money- management expert Dave Ramsey.
This method encourages people to stick with the plan, because even though the first debt is not the largest in the list, paying off even a small debt in its entirety is a satisfying reward. The snowball eventually becomes a landslide as the compounding prior payments are applied to the remaining debt, explains The Simple Dollar.
During the process, only monthly minimum payments are made on all debts except the one with the smallest balance. All payments for prior debts are applied to that balance until it is paid off. If two balances are similar, but have different interest rates, the debt with the highest interest rate should be paid off first, according to Dave Ramsey.Learn more about Financial Planning