Examples of a Debt Snowball Repayment Plan

Explore 3 practical examples of a debt snowball repayment plan to help you regain financial control.
By Taylor

Understanding the Debt Snowball Repayment Plan

The debt snowball repayment plan is a popular method for tackling debt. The concept is simple: you focus on paying off your smallest debts first, while making minimum payments on larger debts. Once the smallest debt is gone, you use the money you were putting towards that debt to tackle the next smallest one. This method builds momentum and motivation as you see your debts disappear. Let’s dive into three diverse examples to illustrate how you can implement this plan in your life!

Example 1: A Young Professional with Student Loans

Meet Sarah, a 28-year-old graphic designer with several student loans. She feels overwhelmed by her debt but wants to take control of her finances. Sarah has three debts:

  • Student Loan 1: \(3,000 (minimum payment: \)100/month)
  • Credit Card Debt: \(1,500 (minimum payment: \)50/month)
  • Student Loan 2: \(7,000 (minimum payment: \)150/month)

Sarah decides to use the debt snowball method. She lists her debts from smallest to largest:

  1. Credit Card Debt: $1,500
  2. Student Loan 1: $3,000
  3. Student Loan 2: $7,000

She has an extra $200 each month to allocate towards her debt repayment. For the first few months, she focuses all her additional payment towards the credit card debt:

  • Month 1: Pay \(50 (minimum) + \)200 (extra) = \(250 total, remaining balance = \)1,250
  • Month 2: Pay \(50 (minimum) + \)200 = \(250 total, remaining balance = \)1,000
  • Month 3: Pay \(50 (minimum) + \)200 = \(250 total, remaining balance = \)750
  • Month 4: Pay \(50 (minimum) + \)200 = \(250 total, remaining balance = \)500
  • Month 5: Pay \(50 (minimum) + \)200 = \(250 total, remaining balance = \)250
  • Month 6: Pay \(50 (minimum) + \)200 = $250 total, balance paid off!

Now that the credit card is paid off, Sarah can redirect the entire $250 monthly payment towards Student Loan 1:

  • Month 7: Pay \(100 (minimum) + \)250 = \(350 total, remaining balance = \)2,650
    (And so on, until all debts are paid off.)

Notes: This method provides Sarah with quick wins, which boosts her confidence and motivation.

Example 2: A Family with Multiple Loans

The Johnson family has a mix of debts and wants to create a budget to manage them more effectively. Their debts include:

  • Medical Bill: \(2,200 (minimum payment: \)75/month)
  • Personal Loan: \(5,000 (minimum payment: \)150/month)
  • Credit Card: \(4,000 (minimum payment: \)100/month)

They decide to apply the debt snowball method. Listing the debts from smallest to largest gives them:

  1. Medical Bill: $2,200
  2. Credit Card: $4,000
  3. Personal Loan: $5,000

They can commit an extra $150 each month to their debt repayment. They focus on the medical bill first:

  • Month 1: Pay \(75 + \)150 = \(225 total, remaining balance = \)1,975
  • Month 2: Pay \(75 + \)150 = \(225 total, remaining balance = \)1,750
  • Month 3: Pay \(75 + \)150 = \(225 total, remaining balance = \)1,525
  • Month 4: Pay \(75 + \)150 = \(225 total, remaining balance = \)1,300
  • Month 5: Pay \(75 + \)150 = \(225 total, remaining balance = \)1,075
  • Month 6: Pay \(75 + \)150 = \(225 total, remaining balance = \)850
  • Month 7: Pay \(75 + \)150 = \(225 total, remaining balance = \)625
  • Month 8: Pay \(75 + \)150 = \(225 total, remaining balance = \)400
  • Month 9: Pay \(75 + \)150 = \(225 total, remaining balance = \)175
  • Month 10: Pay \(75 + \)150 = $225 total, balance paid off!

With the medical bill gone, the Johnsons can now apply their full payment of $225 to the credit card:

  • Month 11: Pay \(100 + \)225 = \(325 total, remaining balance = \)3,675
    (And continue until all debts are cleared.)

Variations: The Johnsons could also consider negotiating with creditors for lower interest rates.

Example 3: A Single Parent with Credit Card Debt

Tom, a 35-year-old single father, is juggling multiple credit card debts. Here’s what he’s facing:

  • Credit Card A: \(2,500 (minimum payment: \)60/month)
  • Credit Card B: \(4,000 (minimum payment: \)80/month)
  • Credit Card C: \(1,000 (minimum payment: \)40/month)

Tom wants to tackle these debts using the snowball method. Here’s how he lists them:

  1. Credit Card C: $1,000
  2. Credit Card A: $2,500
  3. Credit Card B: $4,000

Tom has an extra $100 he can put towards his debt repayment. He starts with Credit Card C:

  • Month 1: Pay \(40 + \)100 = \(140 total, remaining balance = \)860
  • Month 2: Pay \(40 + \)100 = \(140 total, remaining balance = \)720
  • Month 3: Pay \(40 + \)100 = \(140 total, remaining balance = \)580
  • Month 4: Pay \(40 + \)100 = \(140 total, remaining balance = \)440
  • Month 5: Pay \(40 + \)100 = \(140 total, remaining balance = \)300
  • Month 6: Pay \(40 + \)100 = \(140 total, remaining balance = \)160
  • Month 7: Pay \(40 + \)100 = $140 total, balance paid off!

Tom can now focus on Credit Card A:

  • Month 8: Pay \(60 + \)140 = \(200 total, remaining balance = \)2,300
    (And so on.)

Notes: Tom can consider using any bonuses or extra income to accelerate his payments even further!

By applying these examples of a debt snowball repayment plan, you can begin your journey to financial freedom and feel empowered as your debts shrink one by one!