- 1). Collect your debt information
Make a list of all of your debt sources along with the following information: balance, monthly minimum payment and interest rate. For example:
SourceBalanceInterest Rate Min Payment
Debt A$5005%$25
Debt B$100010%$50
Debt C$200015%$100 - 2). Determine how much of your budget can go towards paying off debt. For example: $250 a month
- 3). Put your debt in order from highest interest rate to lowest.
Source Balance Interest Rate Min Payment
Debt C $2000 15% $100
Debt B $1000 10% $50
Debt A $500 5% $25 - 4). Pay the minimum amount for each debt every month, except the one at the top of your list with the highest interest rate. After paying the minimum for the other cards, pay the rest of your budgeted amount to the first card with the highest interest rate:
SourceBalance Interest Rate Min Payment Monthly Payment
Debt C$200015%$100 $175
Debt B$100010%$50 $50
Debt A$5005%$25 $25 - 5). Repeat the process every month, paying the most money to the debt with the highest interest rate and making the minimum payments to the other debts, until all of your debts are paid off.
- 6). If you applied the debt snowball to the simple above example you would have paid off your debt in 16 months and paid interest of $279. When you use the debt avalanche, you pay your debt in 15 months and only pay $235 in interest. That means getting out of debt one month faster and a savings of $44!
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