Debt Snowball Method
If you want to pay off debt, the debt snowball method can help. With this method, you’ll tackle your debts in order from the smallest to largest. Below, we’ll cover what the debt snowball method is, how to use it, how it compares to the debt avalanche method, and the pros and cons.
What is the debt snowball method?
The debt snowball method is a debt payoff strategy that involves paying off your smallest debt first and then applying the payments you were previously making toward it to repay the next smallest debt. You can repeat this cycle until you’re debt-free. The debt snowball method allows you to build momentum or “snowball” your payments as you pay off each debt.
How to use the debt snowball method
If you’d like to use the debt snowball method to pay off your debt, follow these steps.
1. List out your debts from smallest to largest
Make a list that includes all your debts. You should order them from the smallest balance to the largest balance.
2. Focus on paying off the smallest debt first
To start using the debt snowball method, put as much extra money as you can toward your debt with the smallest balance. Don’t forget to pay the minimum balance on all your other debts each month.
3. Repeat with the next smallest debt
Once you pay off your smallest debt, move on to the next smallest debt while continuing to pay the minimum balances on your other debts.
4. Continue the process until all debts are paid off
You can continue this process until you’ve paid off all your debts. Keep in mind that the debt to snowball method may take a bit of time, especially if you have a lot of debts.
How to stick to the debt snowball method
The debt snowball method can be a great way to get out of debt, but it’s important to stick to the plan if you want to see results. Here are some tips on how to do that:
- Make a budget and stick to it: This may be one of the most important things you can do when trying to get out of debt. If you know how much money you have coming in and going out each month, you can better manage your finances and stay on track with your snowball payments.
- Set realistic goals: Don’t expect to pay off your entire debt in just a few months – that’s not realistic. But do set goals for yourself, like paying off an extra $100 or $200 each month towards your snowball payment.
- Automate your payments whenever possible: This will help make sure that you never miss a payment or fall behind on your debt snowball plan.
- Find an accountability partner or group: When everyone is working together towards the same goal, it can be easier to stay motivated and on track with your payments.
Debt snowball method vs. debt avalanche method
While the debt snowball method focuses on paying off your smallest debts first, the debt avalanche method prioritizes debts with the highest interest rates. After you list all your debts and order them from highest interest rate to lowest, you’ll put your extra money toward the debt with the highest interest rate.
Once you pay off that debt, you’ll move on to the debt with the second highest interest rate and continue this process until you’ve paid off all your debts. The debt avalanche may be a good option if your goal is to save as much money as possible on interest and you don’t need the motivation you may get with the debt snowball method.
Debt snowball method: pros and cons
A big advantage of the debt snowball method is that you’ll gain momentum and stay motivated as you see your smallest debts drop. If you’re overwhelmed with debt and need some positive reinforcement, the debt snowball method is a good option to consider.
One drawback of the debt snowball method is that it doesn’t focus on interest rates. Instead, it considers the balances you owe on all your debts. This means you may pay more in interest throughout the process.
Is the debt snowball method right for me?
If you’re thinking about using the debt snowball method, it’s smart to consider a few factors to see if it is the right fit for you. First, you should figure out how much debt you have, since the snowball method only works if you have more than one debt account. You should also consider how much you can afford to put toward your debt payments each month. Depending on your debts, you may need to commit to at least $50 or $100 per month in order for this method to work. If you have multiple debts and are able to gradually pay them off, then this method may work for your unique situation.
What to do once you are debt-free
Once you are finally debt-free, you may be wondering what else you can do to improve your financial security. Here are some additional steps you can take:
Build an emergency fund
This is crucial for anyone looking to improve their financial security – if you have a cushion of savings to fall back on, you’re less likely to fall into debt in the event of an unexpected expense. Many experts recommend saving enough to cover three to six months of living expenses.
Increase your savings
Start setting aside more money each month into a savings account. Even if you can only save a few dollars, this money can add up over time. Try automating your savings so that you don’t even have to think about it.
Diversify your investments
With investments, it’s smart not to put all your eggs in one basket. Instead, spread your money out among different types of investments, such as stocks, mutual funds, and bonds, to help minimize your risk if one investment should tank.
Pay off debt faster with the debt snowball method
Using the debt snowball method can help you gradually pay off your debt until you’re debt-free. Paying off the smallest debts first means you’ll see progress more quickly and can gain the motivation to keep going. Compare the debt snowball method with other strategies and consider your financial situation to choose the right debt payoff method for you.