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When tackling debt, there are unlimited ways you can go about it. Each one might receive promotion as the ideal method, but that truly depends on each individual and how they best interact with money.
The snowball method is one of the more popular debt reduction methods. This strategy focuses on paying off the smallest debts first. Psychologically, taking this route gives the individual a boost of inspiration and positivity as they knock out each debt and make budgeting and strategizing worth it.
How the Snowball Method Works
If you want to implement this process in your debt reduction journey, Credit Karma has broken it down into four simple steps.
Step 1: List out all your debts in ascending order, with the exclusion of your mortgage.
Step 2: Every month, on your payment due date, you will pay the minimum on all your balances except your smallest debt. You will want to review your finances to estimate how much extra cash you can put toward that smaller balance.
Step 3: Once you pay off the smallest balance, you will take all that extra money you were putting toward that monthly payment and roll it over to the next smallest balance on the list. In the meantime, you are still making the minimum payments on all other debts.
Step 4: Continue that process until you pay off all your debts!
The Good and The Bad of the Snowball Method
As mentioned previously, the psychological factor is one of the greatest advantages of the snowball method. When debt has accrued so much, it can be really tough to see the way out of that hole. However, with this method, you get the chance to see your debts slowly get ticked off the debt list. This technique can increase your motivation to continue progressing in this process.
Additionally, the checklist concept of this method allows you to avoid the immense stress of tackling all of your debt at once.
On the other hand, a big argument against using this method is the possibility of paying more interest over time than if you were to use another method. Because the snowball method focuses on the debts with the smallest balances and not the debts with the highest interest rate, the debt you pay off the last may be the costliest.
Ultimately, you want to choose the debt reduction plan that works the best for you, your debt, and your finances. The snowball method is one of the many ways to find a way toward a debt-free life.
Life Insurance Questions?
We hope that this information on the snowball method is useful to you.
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