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Remaining debt-free is very hard to achieve in today's world. Between student loans, mortgages, and credit cards in general, it’s actually quite easy to find yourself under a mountain of debt. However, there’s no need to panic: you just need a plan. Fortunately, there are some effective methods for paying off debt. The debt snowball and the debt avalanche are two such methods; however, while the avalanche is optimal from the mathematical point of view, from a psychological one, the debt snowball is extremely effective.

In this guide, you will learn what the debt snowball method and the debt snowball spreadsheet are and how they can help you pay off your debt. You will also learn the steps needed to create your own debt snowball spreadsheet in Google Sheets or Microsoft Excel. Finally, you will have access to free debt snowball spreadsheet templates, so you can start working on reducing your debt right away.

What is the Debt Snowball Method?

The debt snowball method focuses on paying off the smallest debt first - rather than the one with the highest interest rate - while paying off the minimum amount due on larger debt. Once that first debt is paid off, you repurpose those payments towards the new smallest debt, creating a snowball effect. This creates momentum and gives you a sense of accomplishment as you pay off each debt.

You may be wondering why the method focuses on the smallest debt first rather than the one with the highest interest rate (debt avalanche method). Logically speaking, it makes sense to focus on the highest interest rate first to avoid paying a larger amount in interest. However, debt snowball works on the assumption that when it comes to personal debt, our responses and motivation are emotional, not logical.

Dave Ramsey, a proponent of this method, argues that when you’re trying to pay off debt, you need quick wins in order to stay motivated to stick to your debt-reduction strategy. This is exactly what the debt snowball method helps you achieve.

What is a Debt Snowball Spreadsheet?

A debt snowball spreadsheet is a tool used in this popular method for paying off debt. It lists all debt in ascending order by balance owed and includes the minimum payments due. You need to work out how much you can put towards this first debt while covering the minimum payments.

Once the smallest debt is paid off, you take the money you were paying and put it towards the next smallest debt, and so on. This makes the payments undergo a snowball effect, which allows you to pay off debt more quickly than if you were spreading out payments to multiple accounts. More importantly, as you pay off the smallest accounts, you gain a sense of accomplishment and the momentum to keep going.

How Do You Make a Debt Snowball Spreadsheet?

List all debt in ascending order by balance owed, and add the minimum payments due. Commit to these minimums and determine how much more you can put towards the smallest debt. Once paid off, put that minimum plus extras towards the next smallest debt. Continue until it’s all paid off.

1. List All Debt

The first step is to list all your debt in ascending order by the balance due, as the snowball method focuses on the smallest debt first. However, if two accounts have similar balances, the one with the higher interest rate should go first. You also need to list the interest rate and minimum payments for each.

Debt Snowball Spreadsheet How to Make Free Templates List Debt Details
Debt Snowball Spreadsheet: How to Make (+ Free Templates) - List Debt Details

Since the interest rate is annual, multiply the balance by the interest rate and divide by twelve to get the monthly interest amount for each debt.

Debt Snowball Spreadsheet How to Make Free Templates Calculate Monthly Interest Amount
Debt Snowball Spreadsheet: How to Make (+ Free Templates) - Calculate Monthly Interest Amount

2. Determine the Extra Amount

Once the minimum payments are covered, work out how much extra money you can put toward the smallest balance due.

Debt Snowball Spreadsheet How to Make Free Templates Determine Extra Amount
Debt Snowball Spreadsheet: How to Make (+ Free Templates) - Determine Extra Amount
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3. Set Up a Table for Payment Schedule

Set up a table like the one shown below, with the initial balance for each debt. The first column includes the month and year, and you should cover at least a few years.

Debt Snowball Spreadsheet How to Make Free Templates Payment Schedule Table
Debt Snowball Spreadsheet: How to Make (+ Free Templates) - Payment Schedule Table

4. Pay Minimums & Extra Payment

Select the cell for January 2023 under the payment column. Type the equal sign and select the minimum payment value for Debt1. Add a plus sign and select the cell with the extra amount. Use absolute referencing for both values.

Debt Snowball Spreadsheet How to Make Free Templates Calculate First Payment for Debt1
Debt Snowball Spreadsheet: How to Make (+ Free Templates) - Calculate First Payment for Debt1

Repeat this step for the other debts, but don’t include the extra payment yet.

Debt Snowball Spreadsheet How to Make Free Templates Calculate Other Minimum Payments
Debt Snowball Spreadsheet: How to Make (+ Free Templates) - Calculate Other Minimum Payments

5. Calculate New Balance

In the cell corresponding to Debt1’s January 2023 balance, type in the equal sign and open parenthesis. Select the cell with the initial balance, add a minus sign, then select the cell with the first payment. Close the parenthesis and add a plus sign, and then add the monthly interest amount - using absolute referencing - for Debt1. Press ‘Enter’ to see the result.

Debt Snowball Spreadsheet How to Make Free Templates New Balance Formula
Debt Snowball Spreadsheet: How to Make (+ Free Templates) - New Balance Formula

Select the cells with the payment and balance for Debt1 and drag them down until the balance becomes zero or a negative value.

Debt Snowball Spreadsheet How to Make Free Templates Pay Off Debt1
Debt Snowball Spreadsheet: How to Make (+ Free Templates) - Pay Off Debt1

Redirect to Next Smallest Debt

Once the first debt is paid off, take the minimum and extra payment for that debt and add it to the minimum payment for the next smallest debt. This ensures that the payments continue growing - like a snowball - by accumulating and reassigning the payments as the smallest debts are paid off.

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In the payment column for Debt2, copy the first payment value down to the row with the last payment for Debt1. In the row under that, type in the equal sign and add the previous payment value and the last payment for Debt1, using absolute referencing for both. Grab the fill handle and drag it down to cover at least a year or two, depending on the size of the loan.

Debt Snowball Spreadsheet How to Make Free Templates Copy Payments
Debt Snowball Spreadsheet: How to Make (+ Free Templates) - Copy Payments

In the column with the balance, add the formula to calculate the new balance and copy it down until the balance becomes zero or a negative value.

Debt Snowball Spreadsheet How to Make Free Templates Calculate New Balances
Debt Snowball Spreadsheet: How to Make (+ Free Templates) - Calculate New Balances

6. Repeat Until All Debts are Paid Off

Repeat these steps for all debts until they are paid off.

Debt Snowball Spreadsheet How to Make Free Templates Repeat Steps
Debt Snowball Spreadsheet: How to Make (+ Free Templates) - Repeat Steps

According to this schedule, all debts will be paid off in approximately 5 years.

Debt Snowball Spreadsheet How to Make Free Templates All Debt Paid Off
Debt Snowball Spreadsheet: How to Make (+ Free Templates) - All Debt Paid Off

Free Snowball Debt Spreadsheet Templates

If you’d rather use a ready-made debt snowball template than build it yourself, there are many options available. Below, you have a selection of resources available for free.

Conclusion

The snowball debt-reduction strategy can help keep you motivated to pay off all your debt. While the debt avalanche method is mathematically sound and cost-effective - pay off the highest-interest debt first - you’re more likely to stick to the plan using the debt snowball method. The debt snowball allows for small victories early in the process, making it easier for you to see progress and remain motivated in your mission to pay off all your debt.

You now know what the debt snowball method is and how it differs from the debt avalanche method. You also know the steps involved in creating a debt snowball spreadsheet, so you can create a schedule and keep track of progress. If you prefer, you also have links to several debt snowball spreadsheet templates that are available free of charge.

Hady ElHady
Hady is Content Lead at Layer.

Hady has a passion for tech, marketing, and spreadsheets. Besides his Computer Science degree, he has vast experience in developing, launching, and scaling content marketing processes at SaaS startups.

Originally published Feb 15 2023, Updated Jun 26 2023

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