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
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 this may take a bit of time, especially if you have a lot of debts.
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.
The debt snowball method can help you pay off debt faster
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.