1. Arrange your bills in order from highest to lowest interest rate
2. Look at the top 3 bills and choose the one with the lowest balance
3. Now focus all your efforts (and excess money) on paying this bill off until it has been paid in full
4. Rinse and Repeat, taking your old monthly payment you were applying to the previous bill, and applying it to the next bill

The important thing is that, after you finish paying off a bill, you are disciplined enough to take your new-found monthly wealth and apply it to the next bill.  For example, let’s say you determine that your Mastercard bill is the most important bill to focus on (it was one of your top 3 bills with the highest interest, and also had the lowest balance).  You pay only the minimum payment for all other bills, and put any excess money toward your Mastercard payment.  Let’s say your minimum payment is $40.  Let’s also say that you have $100 extra per month that you can pay toward bills.  Then you’ll pay $140 per month on your Mastercard.  When that’s finally paid off, you’ll select your next bill… let’s say this is your new furniture payment and that the minimum payment is $25.  Then you’ll take the money you were spending on your Mastercard ($140), and add it to the minimum furniture payment ($25), to get your new payment for the furntiure bill ($165).  You’ll then pay off your furniture and add $165 to the next bill, and so on.

Debt consolidation should be a last resort, because of the negative (but temporary) affect on your credit score.  Many people go this route unnecessarily when snowballing would have solved all their problems.  Additionally, snowballing allows you to learn the discipline to stick with your financial planning, so that you won’t have any further problems with debt in the future.  Debt consolidation companies will handle much of this for you, and you often will not get a chance to learn how to properly manage your own money… and you’ll eventually run into the same problems again.

Now, I’m asking for input from my readers.  Have you had any experience with snowballing your debt?  How about debt consolidation?  Let me know in the comments.  I’d like to see how these two different methods have affected you (where positively or negatively) personally.  Thanks for reading!