The example below is to demonstrate a hypothetical application of this snowball. Some assumptions are made to simplify the example: 1) minimum payments are all interest; 2) interest payments stay the same even as the debt gets paid down; 3) There are no balance transfer fees. These assumptions will make the example appear to take longer than it would in real life.

Step One – Commitment to getting out of Debt
John starts living on a cash only basis. If he does not have the money, he will not purchase anything.

Step Two – Evaluating Debt
John Owes:

Credit Card 1 $5000 bal 12% int $12000 limit $50 min
Credit Card 2 $6000 bal 18% int $10000 limit $90 min
Line of Credit $9000 bal 8% int $15000 limit $75 min
Title Loan $2000 bal 24% int $ 2000 limit $40 min

Step 3 – Consolidating and Pay-off Order
After consolidating, John will pay off the following debts in order:

Credit Card 1 $ 7000 bal 12% int $12000 limit $ 70 min
Line of Credit $15000 bal 8% int $15000 limit $100 min
He was able to get rid of his two highest debts by consolidating

Step 4 – Budgeting
After looking at his budget, John commits to changes that will give him $300 a month for debt reduction beyond the minimum payments.

Step 5 – Follow Through
For the first 23 months, John pays:
Credit Card 1 $370 (minimum plus $300)
Line of Credit $100 (minimum)

Month 24 is
Credit Card 1 $170 (minimum plus remaining balance of $100)
Line of Credit $300 (minimum plus remaining $200 from the budget)

Month 25-64
Line of Credit $470 (minimum plus the payment previous going to Credit Card 1)

In a little over 5 years, John will have paid off $22,000 in debt and will now be able to start saving $470 a month for whatever he wants.

Way to go John, and good luck to everybody starting their own snowball.