Many people struggle with paying off debt, especially if there is a large sum, but it does not have to be so daunting. One of the most widely used methods to pay off debt is the snowball method.
The snowball method is an effective and systematic way to pay off debt. At its simplest, the snowball method consists of paying off your smallest debts and then rolling what you would have paid on them into payments on the next largest debts, like a snowball rolling down a hill and growing in size.
Debt is such a common occurrence that many of us don’t even think it is as big of a deal as it can be. Using the snowball method to resolve your debts can lead to a less stressful and more productive attitude towards debt payment.
What is the Snowball Method?
The snowball method is actually one of the easiest methods to use when it comes to paying off your debts. Not only is it easy for anyone to understand, but it is also extremely easy to follow and actually make part of your finance routine.
Here are the basic steps of the snowball method:
- Make a list of all of the debts you have, no matter how big or how small. List them in order from the smallest debt to the largest debt.
- Pay as much as you possibly can towards your smallest debts. This may mean completely paying them off or paying just a little more than the minimum payment.
- Continue to make the minimum payments on larger debts.
- Once you pay off the smallest loan you have, continue this method to pay off the smallest debts just like you did initially.
What makes the snowball method an excellent option for many people is because it involves creating realistic goals and accomplishing them. That skill is integral to having a healthy future financial life—without the ability to create and meet realistic goals, all budgeting will be near impossible.
Why is the Snowball Method So Popular?
There are so many different debt repayments plans out there. They have you jumping through hoops, having to do complicated math and even hiring professionals in some circumstances. There is one apparent reason why the snowball method is so widely used and why it actually works.
The snowball method is more of a behavior. By doing the steps of the snowball method, you are going to be working towards your goals without actually feeling like you are working toward them. Even the more significant debts are going to become smaller as you pay off smaller debts.
A lot of people love being able to tick something off of their to-do list or the satisfaction of accomplishing goals. The snowball method is not only an effective way of paying off debt, but it is also a great way to increase your self-confidence as well as the belief in yourself.
Is the Snowball Method a Fast Way to Pay Off Debt?
While most debt cannot be paid overnight, with the snowball method, certain debts can start disappearing quicker than you may have ever imagined. Focusing on the smaller, easier debts to tackle makes it more likely that you will stick with it as you have a few small “wins” almost immediately.
Here are some benefits of the snowball method:
- Smaller debts get paid quickly as a gradual start to your debt repayment.
- While you are paying on smaller debts, larger debts are still having their minimum payments met, which reduces the overall cost of what you owe.
- Some smaller debts may be able to be paid off in bulk, or at least in a shorter time frame than if you were paying just the minimums.
- The overall number of debts you have will decrease, making your list seem much shorter.
In reality, it may take you just as long to pay off your debts with the snowball method as other plans, but it will seem like you are paying them off faster and you will be more likely to stick with it. For some people, this may be just the boost they need to get out from under their debt and start living a better life with less stress and pressure.
What Kind of Debts Can Be Paid with the Snowball Method?
There are many different kinds of debt. The snowball method works best with money that you owe to another person or business. This is often referred to as non-mortgaged debts.
Here are some examples of debt to include in your snowball method.
- Any Personal Loans: Payday, Student, Home Equity
- Any Large Bills: Cars, Credit Cards, Medical
- Personal Expenses: Alimony, Child Support, Revolving Accounts
If you are a homeowner, then you should not include your mortgage payment into your snowball method plan. As you use this method, make sure that you are updating your plan to include any loans, bills, or expenses that may pop up after the initial calculations.
How to Start Using the Snowball Method for Repaying Your Debts
The easiest way to start using the snowball method to help repay your debt is to get realistic about how much debt you actually have. To do this, make a list of any non-mortgaged debt that you have and list them in order from the smallest debt to the greatest.
Once you have this list, you want to focus on the lowest total debt possible. You want to put any extra money you have towards paying that debt off. Even if you cannot pay it at once, you should try and put at least 20% extra than you initially planned. The lowest debt on your list should have the most significant payment at the end of the month.
Is the Snowball Method Right for You?
If you are considering the snowball method as a way to pay off your debts, then chances are it is going to be a good option for you. Not only is it easy to do no matter what your income looks like, but it can also help to relieve some of the pressure that you may be feeling as a result of your debts.
Here are some questions to ask yourself:
- Do I have more than one source of debt that seems overwhelming?
- Are many of my debts smaller amounts that just seem to add up?
- What kind of expenses are my debts?
- Do I struggle with building the momentum I need to pay my debts?
- Am I stressed and confused about where to start paying off my debts?
Since it is such an easy way to manage your debt, it is often an excellent way to get the momentum you need to find financial stability in your life. The snowball method not only reduces the amount of money you owe in total, but it also reduces the list of debts you owe, which can be beneficial to many people on their financial journey.
Final Thoughts
The snowball method really is one of the easiest debt repayment plans that you can choose from, especially if you may not be as financially savvy as you want to be. Not only is it easy to understand, but it is something that you can do on your own time with no additional training needed.
The snowball method has helped millions of people gain a better understanding of their financial situation. It can help boost your confidence and show yourself that you can repay the debts you have accumulated. It also helps that it is recommended by so many financial professionals too!
Sources:
https://www.ramseysolutions.com/debt/how-the-debt-snowball-method-works
https://www.ramseysolutions.com/debt/get-out-of-debt-with-the-debt-snowball-plan