Way back when, I tried my hand at creating a spreadsheet to help with figuring out how to drive down your debt using the snowball method. Admittedly, it had some problems and was really only good for my own use, in the end.

But today, I came across a post on The Consumerist that linked to a spreadsheet that, frankly, blows mine out of the water in terms of functionality and completeness. I suggest you take a look at it if you’re trying to snowball method of paying off your debts. It’s simple to use and gives you a great overview of where you money will go.

Debt Reduction Calculator

The spreadsheet is free for personal use, but it does seem to require you to have Excel since I can’t get it to open in Google Spreadsheets. (I haven’t tried it with Open Office, so it might work there.) Visit the site for more information and to download the spreadsheet: Free Debt Reduction Calculator for Excel.

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com

This is a follow-up to yesterday’s post announcing availability of the first version of my snowball forecast spreadsheet.

By now you’ve had time to play with the forecast for snowballing away your debt and things may be looking pretty sunny or very dim depending on your situation. That’s ok, because getting out of debt is a very personal experience and can be a painful one. But the pain of eliminating debt is far less than the long-term damage debt can do.

That’s where your snowball forecast comes in. With any new venture, it is necessary to go into it with a solid plan in place. Your forecast is your plan to eliminate your debt in the most efficient way possible. My forecast came out to be a 5-year plan but yours may be shorter or much longer. But the important thing is that you have a plan, regardless of how bleak it may appear right now.

The real kicker to getting out of debt is to ignore the minimum payments (in a good way). When you built your forecast, you likely inputted the minimum monthly payments for each of your debts. Instead of focusing on the minimums of each debt, you need to determine what is the most you can afford to put into paying your debts every month. Ideally, your maximum is well above the sum of your minimum payments (if not, please seek help consolidating debts into monthly payments you can afford and stop adding on more debt) and the difference between those values is a bonus snowball.

For example, the sum of my minimum payments (excluding the tax and insurance for my mortgage) was $1,698.26 per month. After analyzing our income and expenses, we might determine that we can actually afford $1,900. That means from the very start, I could add a $201.74 snowball to my first debt. (Notice I did not say I could afford to take on that much more debt – the goal here is to get out of debt, not buy more stuff.)

Suddenly, by adding $200 extra (to keep number even) to the first debt and keeping that around as a snowball, I eliminated 18 months from my snowball forecast. $200 per month saved me a year and a half of debt payments! And even if we could only afford $50 more (less than the cost of an average cable bill), we would still shave off 5 months of debt.

As you can see, the true power in snowballing comes not from the minimum-payment snowball itself, but from the extra you commit to paying off your debt. Think of it as each extra payment as a boost of nitro to really power your snowball down that hill. Keep up those extra payments and even let them grow (through salary increases and snowflakes) and you’ll blow through that debt in no time!

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com

Thanks to Lisa, who commented in my post on the power of the snowball, for prodding me to make a template for others to follow.

The debt snowball method can be a very powerful force when implemented properly and with sufficient planning. If you’re not well-versed in Excel and the formulas, it can be hard to set up a spreadsheet for yourself. I’ve taken care of the hardest part for you, all you have to do is plug in your numbers

This version of the template will allow for up to 10 debts to be forecast and does have some limitations (that I hope to eliminate in a potential future update):

• First, the snowball will roll from the left to the right, so you need to make sure the balances to the left disappear before the ones on the right. If a debt in the middle of the sheet is paid off before one on the left, the first debt to the right of the newly-paid debt will receive the snowball benefit. This is due to the limitations of the formulas I used (had to prevent circular references).
• Second, the spreadsheet is set to calculate over 100 months. If you need your forecast to extend beyond that range, you’ll need to copy the whole bottom row and paste it to the bottom of the table as many times as you need. There are other more efficient ways to do this, but for the sake of keeping the instructions simple, that will be sufficient.
• Third, variable interest rates are not handled by this spreadsheet. Your best bet, if you have a variable rate loan, is to estimate high on the interest rate and be pleasantly surprised later when you pay it off early.
• If you happen to use Google Spreadsheets to open the spreadsheet, there seems to be a bug preventing display of the payments on the first debt. I don’t yet know what’s causing that one – it opens fine in Excel…

Using the spreadsheet is fairly simple – all of the work is done for you through formulas. I prefilled the spreadsheet with my original snowball forecast (the one I wrote about before was a further customization) and all you’ll have to do is edit the cells in pink to match your data. To use this template, you’ll need to know the following information:

• The date your forecast will begin
• The information about your various debts
  • Debt Name
  • Monthly Payment
  • Interest Rate
  • Balance as of the beginning of the forecast

Once you’ve gathered that information, it’s just a matter of plugging it into the spreadsheet in various orders to see what happens over time. My example data illustrates the “lowest balance” method, but that is only one possible way to eliminate your debt. Play with your numbers to find your most efficient snowball and then stick with it. In time, you will see the benefits of the snowball as your debt gets plowed away.

Click for a graphic sample:

Click to download: Snowball Forecast Template

If you come up with improvements for the spreadsheet, let me know and I’ll add them in. There’s no reason we can’t come up with a wonderful solution as a community. And beyond this spreadsheet, there are many other online tools to help you with your snowball planning. If this spreadsheet doesn’t fit your needs, just hit up Google and find the right tool for you. Your debt payment plan is too important to leave in the hands of one tool or method. You owe it to yourself to find the most efficient plan for you!

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com

Update: I have posted a template for setting up your own snowball forecast.

Seeing the snow outside my window got me thinking about Dave Ramsey’s debt snowball concept. After all the reading I’ve done about snowballing one’s debt, I knew I was going to implement the same method in knocking out all of our non-mortgage debt. Until today, I really didn’t grasp the true power of the concept.

I decided, as I often do, to put together a spreadsheet so I could actually see the numbers and the impact they will have. But before I could input any numbers, I had to decide what my goals are. We had already decided to pay the car off first and completely pay it off when the balance reached $3,000. Since we’re getting reasonably close to that goal, I decided to leave that to be the first snowball “victim.” Second, we want to get our house’s loan-to-value down to 80%. At that level, the credit union will allow us to take control of our tax and insurance escrow and save or invest it as we like. After that, we need to just continue to pay down debt until it’s all gone.

Goals

1. Pay off the car loan
2. Get our loan-to-value down to 80%
3. Pay off everything else

Once I had my goals lined out, then it was time to implement the spreadsheet with those goals. I gathered up all the information about my various interest rates and current monthly payments. Since I already use this data for putting together my Monthly Balance Sheets, this was easy to prepare. Since we currently didn’t have a “set” monthly payment for the student loans, I consulted with my wife and we decided that we would start putting $100 per month toward each instead of our previous “whatever we felt like” method. (I’ve found it’s really hard to build an accurate forecast around “whatever we feel like.”)

Then it came time for putting together the actual forecast – nothing more than the usual mundane data and repeating formulas. The actual inputting of the data may have been mundane, but the results were anything but! As I extended out the forecast through December 2013, it became clear that this was going to reveal extraordinary results… Since it’s really too large to include in the post, you can view the entire spreadsheet here: Snowball Forecast

Assuming no interest rate changes or new debt, here is what the forecast predicted:

Snowball Forecast

1. Pay off the car loan
   • Completed October 2008
   • $300/month now goes toward Home Equity
2. Get our loan-to-value down to 80%
   • Reached May 2010
   • $300/month now goes toward Student Loan 2
3. Pay off everything else
   1. Pay off Student Loan 2
      • Completed July 2011
      • $400/month now goes toward Student Loan 1
   2. Pay off Student Loan 1
      • Completed December 2012
      • $500/month now goes toward Home Equity
   3. Pay off Home Equity
      • Completed April 2013
      • $715/month now goes towards savings and investments

That means in just a shade over 5 years, we will pay off $39,156.78 in debt! Come May 2013 we will have only the mortgage left with a balance of $148,045.06 and our home equity, assuming the value of our house stays the same, will be $57,954.94 – more than our total net worth today!

Until you see it for yourself, it’s really hard to imagine the power of the debt snowball. I had no idea it would be possible to be “debt-free” in just 5 years, seeing as how we have just over 13 years left on our home equity if we continue with our minimum monthly payments. It just goes to show the far reach of a simple philosophy change. If you haven’t already done so, take a read through M-Network’s break-down of Dave Ramsey’s 7 Baby Steps (Baby Step #2 is paying off debt with the debt snowball.)

Happy snowballing!

Many others have also discovered the power of the snowball:

• Get Rich Slowly – In Praise of the Debt Snowball
• I’ve Paid For This Twice Already – Baby Step 2: Pay Off Debt Using the Debt Snowball
• Consumerism Commentary – Paying Off Debt: 6 Steps to Building a Better Snowball
• No Credit Needed – Day 23 of 33 Days And 33 Ways To Save Money And Reduce Debt: Illustrated Debt Snowball
• Moolanomy – 7 Steps Debt Reduction Illustrated

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com