How the Debt Snowball Method Works

This post originally appeared on The Financially Independent Millennial and has been republished with permission.

Have you stumbled upon numerous methods of eliminating debt? Perhaps you find yourself wondering how to get out of an out of control debt spiral. If so, the debt snowball method could be a simple way to pay down debt. While there are many ways to do this, the snowball method is one of the very best and easiest methods to implement. Additionally, having zero unsecured debt is key if you’re wondering how to become financially independent.

Getting Started with the Program

First, in case you’re thinking it, no: it doesn’t involve any real snowballs (But, wouldn’t that be fun!). Second, you need a budget. In case you haven’t, here’s how to make a budget.

The debt snowball method first requires that you create a list of all your debts in order of the balance. Then, you start by paying off the account with the lowest balance first. To be sure, you would only make the minimum payments on the rest of the loans.

Gathering All Your Credit Balances

For instance, a hypothetical situation might look like this:

Mortgage Balance: $240,000
Car Loan: $18,000
Line of Credit: $9,000
A – Credit Card: $5,000
B – Credit Card: $2,000
C – Credit Card: $800

Implementing the Debt Snowball Method

In this case, you start by paying off credit card C first (i.e. as your initial goal). Then, give yourself a big pat on the back as a first achievement! Following that, work on Credit card B, then A, etc.

You see, since you’d have no more payment on the accounts (Starting with credit card C) that are paid off, the idea is that you then use that money to pay off the other accounts. Thus, you’re supercharging the payoff period! In addition, by simply paying off your debts, your credit score might improve.

What If I Don’t Have a Lot of Money to Pay My Debts?

No doubt, you’ll need to put your extra money at the end of the month toward paying down your debts. If you have no money, then you’ll need to consider asking for a raise, changing jobs, or starting a side hustle.

Is the Debt Snowball Method the Best?

Is the debt snowball method financially optimal for paying off your creditors? No. Sure, paying down your debts with the highest interest rate would be mathematically and finally better. However, in my own experience, this is my favorite debt-reduction strategy. Why? It provides the instant gratification needed to see it through to the end!

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