The Debt Snowball Method: What It Is and How It Works

There are many methods for paying off debt, some with catchy, descriptive names. Here, we’ll consider the debt snowball method, what it is, and how it works.

Line Them Up and Pay Them Down

We all face the task of paying monthly bills. A monthly budget includes money for food, rent/mortgage, and utility payments, plus enough to pay the minimum due on every debt you owe. But with the snowball method, you choose the smallest debt where you owe the least money and commit to paying that off first. You do so by paying a little more than the minimum each month.

Why It’s Called the Snowball Method

Snowballs start small, and as you roll them along, the wintry weapon you wield as you lie in wait for your sibling to come around the corner gets bigger. (Just remember, fair’s fair in a snowball fight, so your sibling may be building their own ball to hurl back at you!)

When it comes to the debt snowball method, what it is, and how it works, however, the “snowball” is the amount you put toward the next debt you pay off. You pay off your smallest debt first. Then, you take the money you were applying to that smaller debt and add it to the payment you’re making on your next smallest debt, and so on. That way, the amount you pay on each subsequent loan on your list “snowballs,” getting larger with each loan you pay off until you’ve paid off all your debts. With this method, you’ll pay off your debts more quickly than you might have been able to otherwise.

A Few Warnings

The snowball method uses psychology: when you pay off a debt, you’ll feel good about yourself and motivated to pay off your other debts. However, the snowball method costs more over time because interest still accrues on your larger debts while you’re paying down the smaller ones.

Another debt repayment method, also based on a snowy metaphor, is the “avalanche” method, where you pay off the highest interest rate debts first. But when you owe a lot of money, it can take a long time to pay it off. When you’re not seeing progress quickly, you could get discouraged.

The most important caution when you’re trying to pay off debt is don’t take on more of it! Your snowball will melt a little with every additional debt you take on. So watch your spending and your debt, and keep rolling that snowball until it’s big enough to tackle your largest debt.

An Alternative

A debt consolidation loan wraps all your debts (with the possible exception of your mortgage, if you have one) into one payment under one loan. The interest rate will be important, so do the math when you talk to a loan company about your debt consolidation options. You’re thinking about how to improve your financial future, so you’re on the right track. Keep up the good work and with discipline, and you’ll shrink that mountain of debt back down to manageable molehill size!

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