Paying off $130,000 in student loans within four years sounds like a fantasy, but for Brian and Lindsey Baldwin, it’s their reality.

After stacking up six figures in debt across eight individual loans, the Baldwins were drowning in monthly payments, with their largest loan of $35,000 incurring 9% in annual interest.

After the birth of their first child, the weight of their debt became difficult to ignore. The Baldwins were determined to eradicate this massive burden that floated over their lives like a persistent rain cloud.

While implementing a strict budget was required, it wasn’t sufficient. The Baldwins decided to pull out the big guns, the debt ‘snowball method.’

What’s the debt snowball method

The debt snowball method is a strategy that prioritizes paying off your lowest debt balances first. You rank debt balances from smallest to largest and cover the smallest ones first. You allocate as much cash towards the lowest balance, only making minimum payments on all other outstanding debts.

Why is it so effective? It's psychology

Improving financial health isn’t complicated. At the end of the day, you have two options: reduce expenses and increase revenue.

Of course, both these options are easier said than done.

Why is that? Why, if tackling debt is so simple, do so many people struggle with it?

It may be simple, but it’s not necessarily easy. It’s like fitness. Almost everyone can tell you how to become fitter through more exercise and healthier eating. Implementing these strategies in practice, however, is another story.

You might be curious why the method recommends clearing the smallest balance versus attacking the balance with the highest interest rate.

Simply, it’s psychology.

Humans love momentum. Watching debts clear as quickly as possible is motivating. This motivation can spiral, helping make habits stick.

Imagine how happy the Baldwins were as they began crossing loans off their list. Not only that, as they cleared debts, the subsequent balances were attacked even more aggressively as their available money was concentrated on fewer loans.

In other words, this strategy only gets easier each month.

How do you set up a snowball debt?

This method comes down to four simple steps:

  • Rank your debts based on the outstanding balance from smallest to largest
  • Pay only the minimum payments on each outstanding debt obligation, except for the top-ranking debt (the smallest balance). For the top-ranking debt, make as large a payment as possible.
  • Once the first debt is cleared, move to the second lowest debt obligation. Again, make only the minimum payment on all debts except the top-ranked smallest balance. As you move down the list, the amount of money you have to tackle subsequent obligations grows or “snowballs” since you have fewer outstanding minimum payments.
  • Repeat the process until all debt payments are cleared

How to keep track of your debt using a debt snowball spreadsheet

The debt snowball method usually involves leveraging a spreadsheet application, like Microsoft Excel or Google Sheets. Using a spreadsheet, you can easily track and rank your outstanding debts, updating it monthly to maintain a clear picture of your progress, keeping you organized and, importantly, motivated.

How do I create a debt snowball sheet in Excel?

Typically, a snowball debt spreadsheet in Excel will have the following columns:

  • Debt Name
  • Original Debt
  • Current Balance
  • Minimum Payment
  • Interest Rate
  • Snowball Payment (the total amount of money you can allocate to debt repayment minus the minimum payments on all loans except the smallest, top-ranked debt)
  • Remaining Balance

After adding all your debt obligations to the spreadsheet, you can sort the “Current Balance” column from smallest to lowest.

In addition to the columns above, you’ll require a few other sections (or cells) within the spreadsheet:

After adding all your debt obligations to the spreadsheet, you can sort the “Current Balance” column from smallest to lowest.

In addition to the columns above, you’ll require a few other sections (or cells) within the spreadsheet:

  • One cell where you input the available amount each month to allocate towards debt repayment
  • A second cell sums the total minimum payments, excluding the smallest debt
  • Lastly, a third cell which subtracts #2 from #1. That is, a cell that calculates your current snowball payment

The spreadsheet will require monthly updates to the current balance of each debt payment. As debt payments are removed, the snowball payment must be adjusted higher.

While you can create a debt snowball spreadsheet in Excel from scratch using the columns above, it’s unnecessary.

Does Excel have a debt snowball template?

Yes, Excel does have a debt snowball template. Countless templates have been created and submitted by users. A few of the best ones have been included below.

Three templates to get your started

While there are countless templates to choose from, here are three excellent free debt snowball spreadsheets options you can begin using right away:

Alternative method: debt avalanche spreadsheet

A debt avalanche spreadsheet is created nearly the same way as a debt snowball spreadsheet, except the loans aren’t ranked by loan balance. Instead, loans are ranked based on their interest rate, with the highest at the top.

The major advantage of the debt avalanche spreadsheet is it results in lower total interest payments over time since you’re prioritizing the highest interest rate loans.

The downside of the debt avalanche spreadsheet is you won’t get as dramatic of momentum as you do with the debt snowball spreadsheet.

Next steps

Debt can be overwhelming, even debilitating. The thought of tackling hundreds of thousands of dollars in loans makes most of us want to bury our heads in our pillows.

Thankfully, using a snowball debt spreadsheet can help you overcome the often paralyzing anxiety that debt can produce. The hardest part is simply starting the strategy.

As you begin using a debt snowball spreadsheet, each subsequent month gets easier. Balance balances begin to reduce, and loans fall off your spreadsheet.

Start by ranking your debts to help appreciate where you stand. Don’t worry about reinviting the wheel. If you find a template you like, use it. Don’t overthink it. Get moving and gain momentum.

The jubilation and motivation most people experience as debt lowers is hard to quantify. Whenever you're struggling to push forward, envision yourself knocking off debts one by one.

Psychology is powerful. Leverage it.