Debt snowball method – Snowball your way to a debt-free life!

Are you looking at the debt you have accumulated and wondering how you can pay it down? Paying down debt requires a plan and determination to follow through.

There are debt repayment plans that can help you pay debt in an organized manner. Depending on the nature, size and cost of each of your debts, some debt repayment method may make more sense than others. Developing a plan and sticking to it is also a psychological process, so a lot may depend on the psychological aspects of your debt repayment plan.

Debt snowball method is one of the most popular debt reduction methods that can help you pay down debt in a way that keeps giving psychological and emotional boost. While it may not be the fastest way to pay down debt, it works by helping you get rid of the number of debts you have.

This method is easy to understand and implement. It won’t need you to do a lot of number crunching.

How does debt snowball method work?

It is normal to have debt from more than one source; multiple credit card accounts, car loans, personal loans, education loan, etc. All these may have varying balances and varying interest rate on these debts.

  • Arrange your debts in an ascending order, starting from lower balances to the higher balances that need to be repaid. This method considers only the size of your debt and not the cost of it. Cost is the interest you pay on the amount of the debt. This method gives priority to the smaller debts and then works down its way to the larger debts.
  • The next step is to pay-off the minimum payment on all the debts, except for the smallest debt. For the smallest debt you must pay the minimum monthly amount plus an additional amount that you might have in hand. Continue making such payments every month till the smallest debt is paid off completely.
  • For the next month you will have surplus amount, i.e., the minimum amount for the smallest debt that got scratched off from the list last month plus the additional cash you might have saved this month. You now have more money to pay off the remaining debts. You now move on to the next smallest debt on the list and repeat step two until this smallest debt is also paid off completely.
  • In the upcoming month you will again have additional money, i.e., from the minimum amount for the first two smallest debts plus the additional cash at hand. The cycle repeats and you pay-off all your debts over a period of time.

You might have noticed that the amount of debt-payment grows after repayment of one debt after another. This is what we call the snowball effect. Debt snowball method starts yielding positive results within a short period of time, provided you implement and follow it.

Why does Debt Snowball Method works?

Mathematically it would make sense for you to make the highest payment towards your highest interest rate debts; however it may not be the most encouraging way to pay down debt. When paying down debt, it feels to see some debt go away, so attacking your smallest debts will help you eliminate then sooner, this will give you mental and emotional boost.

Confidence and patience are two very important things that will act like a support system throughout your journey of debt-reduction.

2 thoughts on “Debt snowball method – Snowball your way to a debt-free life!

  1. Grayson @ Debt Roundup February 22, 2013 at 8:12 pm

    I think it is a good emotional method, but I went with the avalanche because it saved me a lot on interest and paid my debt quicker.

  2. The Money Mail February 23, 2013 at 3:55 pm

    You are right Grayson. I will be covering the avalanche method in the next few days on the site and then hopefully publish a comparison of the two

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