How the Debt Snowball Method Helps You Pay Off Debt Faster
If you’re drowning in the debt problem and do not know which credit card debt to pay off first, try the debt snowball method.
Have you ever heard of the snowball method of paying back debts to your creditors? If not, read this article to learn how the debt snowball method can accelerate your debt payoff procedure.
There is a myth among debt-stressed consumers that paying off the debt with the highest interest rate is always better to get out of debt quickly.
But the truth is that you require paying off the debt with the lowest interest rates first to make the debt pay off faster. Therefore, look at how you can snowball your debts to pay them sooner.
How does the debt snowball debt payment strategy work
Remember one important point: the debt snowball payment method works with the outstanding balance of debts.
Suppose you have three outstanding balances.
- Credit Card 1 with a $3000 outstanding balance, a $100 minimum monthly payment, and a 25% interest rate.
- Credit Card 2 with a $2000 outstanding balance, a $80 minimum monthly payment, and a 20% interest rate.
- Private Student loan with $30,000 outstanding balance, $300 minimum monthly payment, and 5% interest rate.
First, you should pay off the minimum of all the outstanding balances.
Second, try to contribute as much money as you can towards the debt with the highest interest rate.
Third, when you pay off your debt with the highest interest rate, then concentrate on the debt with the second-highest interest rate.
Fourth, in this way, from the highest interest rate to the lowest interest rate, repay all your outstanding balances.
With the debt snowball method, your interest in debt payment will remain intact, and you can pay off your outstanding balances very calculatedly.
Does it work for your debt payment goal?
The debt snowball method can be your ideal debt payment strategy if you have small debts. It is a good method to stay motivated throughout the payoff journey.
Though the debt snowball method will cost you more in the interest rate payoff, it can help you sustain your debt payoff journey.
With the debt snowball method, chances are less that you’ll lose your energy and surrender before the monthly debt payment target.
Steps to pay off debt through the debt snowball method
There are a few steps involved in paying off debts through the debt snowball method. Read on to learn the tips to snowball your debts.
Make a list of all your debts.
You must list all your credit card debts to know where you stand financially.
Take a pen and paper and list the credit card companies and the amount of money you owe them.
Write down the principal amount and the interest rate against each debt amount.
Get a snowballed list of your debts.
Once you have had a list of all your financial obligations, make sure you arrange them in ascending order. Make a list according to the smallest debt to the highest balance.
This way, you can have an idea of how much debt amount you have to start with.
Designate a certain amount of funds.
You should designate a certain amount of funds, like the emergency fund, that can be used to pay off your debts each month.
Every month, it is pretty tough to have enough funds to pay off your debt obligations; therefore, you need a specific fund that can help you pay off your existing debt burden.
Save money to allocate funds.
You need to save money religiously to concentrate your funds towards paying off the minimum payments of the lowest balance debt.
Cut down your expenses on luxuries and look forward to spending only on necessities.
Conclusion
Paying off debt is not easy. So, if you can focus on your debt payment regularly and remember the monthly payment dates, then the debt snowball payment method is made for you.
Choose the debt payment strategy that you feel you are comfortable with. Don’t take extra pressure on yourself and choose the debt pay-off program that suits your profession.
The main principle of the debt snowball method is to stop making all minimum monthly payments and to focus on a single payment.
If you keep on making multiple minimum monthly payments, all your efforts will seem to get diluted.
Make a list of the debts according to the smallest principal balance first and then the next balance, and start targeting your debts in this manner.
Form an emergency fund keeping a fixed amount of money so that you can trigger your debts in the snowball method.
Author Bio:
Attorney Loretta Kilday has over 36 years of litigation and transactional experience, specializing in business, collection, and family law. She frequently writes on various financial and legal matters. She is a graduate of DePaul University with a Juris Doctor degree and a spokesperson for Debt Consolidation Care (DebtCC) online debt relief forum. Please connect with her on LinkedIn for further information.
Category: Debt
