One of the most rewarding and freeing things you can do for yourself this year is paying off debt.
Paying off debt can be a daunting task. One that we know we need to do but will tuck away for another day. Meanwhile, the debt is only getting larger, and we are sinking further into a hole that feels impossible to get out.
If you feel stuck and don’t know where to start, start here.
With the debt snowball method, you will have a clear idea of what to do to get ahead of your finances.
What is the debt snowball method?
When you start making a snowball, you start with a solid little ball of snow. Then you continue to add more and more snow until it’s a perfect size. That is, the snowball effect and the debt snowball method is the same.
The debt snowball method is a debt reduction strategy where you pay off your debts in the smallest to largest order. This method helps you gain momentum from each small victory of debt paid off. Once the smallest debt is paid in full, that payment now an addition to the next smallest debt payment.
How does the debt snowball method work?
Baby Step 1: Write down all of your debt in order from smallest to largest
Step 2: While making the minimum payment on all of your debt, focus on the smallest debt by putting extra money towards that debt.
Step 3: Once your first debt is paid in full. Shift your focus on the next smallest debt. Using any extra money and the minimum payment amount from the first paid debt towards debt #2.
Step 4: Once debt #2 is paid in full, turn your efforts towards debt #3 on your list. Use the minimum payment from the now paid debt #1 and #2 and any extra money available.
Step 5: Continue these steps until your completely free from debt.
Why should I Debt Snowball over Debt Avalanche?
Both debt snowball and debt avalanche (also known as debt stacking) are debt reduction strategies.
A debt avalanche is when you list your debts in order from the highest interest rate to the lowest interest rate, make the minimum payment on all debt, and focus on the highest interest rates first.
There is no wrong way to pay off debt.
Paying off debt using the debt avalanche method may save you money in the long run. However, I agree with the financial guru Dave Ramsey and prefer the debt snowball method.
Why? Because debt is more than the money, you owe. Debt is a mind game that we are all playing. When you use the debt snowball method, you gain momentum by knocking the small debt off your list quickly so you can focus on the big ones.
Those victories propel you to keep going and that is half the battle.
Everything you save money on can be put towards your debt snowball, even if it’s $10 on your Netflix subscription. If you are looking for ways to save money, here are 15 simple tips to save money and not have to sacrifice the things you love.
There are also great side income opportunities that take little time but can help you achieve financial freedom quicker.
Getting out of debt is the best gift you can give yourself. It may take 6 months or 5 years to pay off debt and get to where you want to be financially, but the important thing is you keep moving in the right direction.
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