Debt Snowball Method and how it works

The debt snowball method is a debt reduction strategy that involves paying off debts in order of smallest to largest, regardless of interest rates. This method is designed to help you build momentum and motivation as you see your debts disappear one by one, creating a snowball effect.

How to Get Started with the Debt Snowball Method

  1. List Your Debts: Start by listing all of your debts, including the balance owed, interest rate, and minimum monthly payment.
  2. Order Your Debts: Order your debts from smallest to largest balance.
  3. Set a Budget: Determine how much extra money you can put towards your debts each month.
  4. Pay Minimums on All Debts: Make the minimum monthly payment on each of your debts except for the smallest.
  5. Pay Extra on Smallest Debt: Put all of your extra money towards the smallest debt until it is paid off.
  6. Repeat the Process: Once the smallest debt is paid off, take the money you were putting towards it and apply it to the next smallest debt. Continue this process until all of your debts are paid off.

Why the Debt Snowball Method Works

The debt snowball method works because it provides a clear plan of action and helps you build momentum as you see your debts disappear one by one. By starting with the smallest debt, you can quickly see progress and feel motivated to continue the process. Additionally, paying off debts in order of smallest to largest allows you to focus on one debt at a time, rather than feeling overwhelmed by multiple debts with different interest rates.

Tips for Success

  • Cut expenses: Look for areas where you can cut expenses and redirect that money towards your debt snowball.
  • Increase income: Consider taking on extra work or finding ways to increase your income to put towards your debt snowball.
  • Stay motivated: Keep track of your progress and celebrate each debt that is paid off to stay motivated and focused on your goal.

Debt Snowball Method vs. Debt Avalanche Method

The debt avalanche method is another debt reduction strategy that involves paying off debts in order of highest to lowest interest rates, rather than by balance. While the debt avalanche method may save you more money in interest payments over time, the debt snowball method can be more effective for those who need motivation and momentum to stay on track.

Conclusion

If you’re struggling with debt, the debt snowball method can provide a clear plan of action and help you build momentum as you work towards becoming debt-free. By following these steps and staying motivated, you can make progress towards your financial goals and achieve the peace of mind that comes with being debt-free.