What Is The Debt Snowball Method?
If you’re like many Americans and find yourself sliding down the slippery slope of debt, it is important to take the necessary steps to begin reducing your balance and regaining financial freedom. One of the best options for getting out of debt is the debt snowball method, which is a strategy used to pay off multiple debts in order. This strategy is effective because it helps motivate you to stick with it and make progress towards reaching your goals.
What Is The Debt Snowball Method?
The debt snowball method is an approach to tackling multiple debts at once. You’ll start by making minimum payments on all debts except the smallest one. Once that bill is paid in full, you’ll add the minimum payment from the previously paid debt to the smaller one, and so on until all your debts are paid off.
The idea behind the debt snowball method is that you’ll be able to quickly pay off your smallest debts first and create some momentum towards paying off the other debts. Seeing progress right away can help you stay on track with your debt repayment plan and not get overwhelmed by the amount of debt that you have.
Advantages Of The Debt Snowball Method
There are several advantages associated with the debt snowball method. Here are some of the top benefits:
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Quick progress: It helps you to make quick progress as you pay off your smaller balances and move on to the larger amounts. It may not be the quickest method out there, but it gets the job done.
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Feels rewarding: As you manage to pay off debt and watch your debts shrink, it can feel rewarding. It can be a great way to increase your motivation while tackling a big problem.
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A simple strategy: The debt snowball method is an easy-to-follow plan that you can use without needing to understand complex numbers or financial calculations.
Disadvantages of the Debt Snowball Method
The debt snowball method isn’t right for everyone, as there are a couple of downsides that could be detrimental to your progress. Here are a few of the disadvantages:
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Not always the cheapest option: It isn’t always the most cost-effective approach as you may have to pay more in interest if you don’t target the highest interest rate debt first.
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Potentially slow progress: You may make progress on the smaller debts but find your progress slowing down when you start to tackle the larger and more expensive debts.
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Doesn’t help establish healthy habits: The debt snowball method may help you get out of debt, but it’s not necessarily a long-term solution that can help you build healthy financial habits.
How To Use The Debt Snowball Method
Once you’ve decided to go down the debt snowball method approach, there are a few steps that you need to take in order to use it effectively. Here’s a breakdown of the steps:
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Make a list of all your debts: Before you begin, you must first create a full list of all your debts, including loan amounts, interest rates, and minimum monthly payments.
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Rank all debts by size: Once you have your list, you need to arrange it from smallest debt to largest. This will ensure you’re tackling the correct debt first.
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Start with the smallest debt: Once you’re organized, start with the smallest debt and make minimum payments on all other debts.
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Focus solely on one debt: Put all your efforts to paying down the smallest debt as quickly as possible. Once that debt is fully paid off, move onto the next smallest debt on your list.
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Roll payments over: Once one debt is paid, add the payment that you were making on it to the payment you’re making on the next debt, and so on and so forth.
Tips To Make The Debt Snowball Method Work
Now that you know the steps involved in using the debt snowball method, here are some tips on how to make it work for you:
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Auto-pay as much as possible: Automating your payments for the smallest debt and minimum payments for the rest of your debts can help you keep up with making payments and motivate you to pay extra on the smallest debt each month.
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Stick to your plan: Don’t be tempted to use the extra money to make extra payments on other debts. It’s important to stick to your plan so that you can see actual progress.
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Use any extra money to pay down debt: When you come into extra money, don’t be tempted to splurge. It’s important to focus on using this money to pay off your debts faster.
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Negotiate with creditors: It never hurts to try and negotiate with creditors to lower interest rates, which can help you save money and make more progress.
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Seek professional help: If you are really struggling with making payments and reducing your debt, don’t be afraid to seek professional help from a financial advisor or credit counseling agency.
The debt snowball method can be an effective way to tackle multiple debts at once and get you out of debt faster. With a bit of planning and a structured approach, this method can help to motivate you to stay on track and make progress. However, it’s important to remember that the debt snowball method isn’t necessarily the cheapest option when it comes to debt repayment and that other methods may be more cost-effective. In any case, when it comes to reducing debt and getting back on track financially, every little bit helps.