Derek Sall speaks from experience when it comes to paying off debt: He conquered more than $100,000 worth of loans by the time he turned 30, and he did it not with a windfall but with a spreadsheet.
Sall, who chronicles his financial journey on his blog, Life and My Finances, first realized he needed to take his debt seriously when he and his then-wife realized they were starting out their post-college lives already underwater. They resolved to get out of debt as quickly as possible and paid off $20,000 in 14 months.
When the couple divorced a few years later, Sall found himself in debt again. Because he wanted to keep the house, he owed his ex $21,000 plus the $60,000 left on the mortgage. Again, Sall buckled down and paid off everything within a few years. He became debt-free just shy of his 30th birthday.
His ability to pay off his debt wasn’t made possible by a high-profile job or a windfall. Rather, he focused on earning as much, and spending as little, as possible.
Sall also utilized a common strategy for eliminating debt: the snowball method.
Popularized by “The Total Money Makeover” author Dave Ramsey, the snowball method prioritizes your smallest debts first, regardless of interest rate. You start by listing out all of your debts, smallest to largest. Then you pay the minimum balance on each one, except the smallest. For that one, you dedicate as much cash as possible each month until it is repaid. Then move on to the second-smallest debt.
The idea is that you’ll gain momentum by watching debts disappear and that will motivate you to continue.
“It’s more important to pay your debts in a way that keeps you motivated to keep going until you’ve wiped them all out,” Ramsey writes on his website. “If you begin with the biggest one, you might think you’re not making fast enough progress, lose steam and not finish the job.”
Although mathematically it makes the most sense to pay back the debts with the highest interest rates first, for Sall, starting with the smallest ones — regardless of interest rate — worked.
“It’s emotion that got you into the debt, so it’s emotion that’s going to get you out,” he explains. “You want to pay off your smallest debt and have those victories, so it’s a motion to pay off the next one, and the next one, and the next one.”
Sall has experts on his side. Researchers for the Harvard Business Review find the snowball method to be the most effective way to pay off debt because you’re more likely to stay engaged if you can see your debts disappearing.
“Focusing on paying down the account with the smallest balance tends to have the most powerful effect on people’s sense of progress — and therefore their motivation to continue paying down their debts,” Remi Trudel, one of the researchers, writes for HBR.
For Sall, it was all about finding his “why.”
“If you don’t have your reason why, it’s just not going to happen,” he says. “You can say, ‘Maybe I want to tackle my debt today and get started,’ but you really have to have that gut fueled-emotion to drive you forward.”
If you’d like to put the snowball method to work yourself, Sall created a helpful spreadsheet that breaks it down. It’s available for free on his blog.