The first thing you need to do is write down all the debt you have, except your house. You will list who the money is owed to with the dollar amount. What is debt? Anything or anybody that you owe money. This could be lloans from family, credit cards, school loans, or car payments. When you have everything written down, rearrange the list so the smallest amount owed is at the top and the largest amount owed is at the bottom. Don't be concerned with the amount of interest you pay on each payment, just the amount owed.
Here is what our snowball looked like when we started:
Dept. Of Education - $3000.00
Mini-van - $12,294.00
Personal Loan - $13,000
It works like this. You continue to pay the minimum payments on everything except the smallest loan amount. On the smallest amount you pay the minimum plus any extra cash you can find.
Our minimum payments were laid out like this:
Dept. of Education- $50.00. However, with funneling every extra penny we paid an additional $250.00 a month
Mini-van - $214.00
Personal Loan- $345.53
As soon as you pay off the smallest loan in full, you move on to the the next. Your next payment will be minimum payment plus the payments you were making before. So, $300.00 (Dept. of Ed) + $214.00 (Mini-van) = $514.00 total payment on debt #2.
Once you get the snowball going it is amazing how fast the debt disappears. It took us 21 months to completely get out of debt. We set up a budget, we put cash in our envelopes, and put every extra cent towards our debt.
Confused? Questions? Ask in the comment and we'll get back to you.