People all around the world struggle with paying off their debts. Some are trying to pay off their student loans, some want to pay off their mortgage and some are trying to get rid of high-interest credit card debts. No matter what your situation is, you are going to need an effective debt payment method in order to get any success.
There are several ways to repay your debts, one of which is the snowball method. Many people use the snowball method to pay off their loans and get their finances in order. If you are looking for more information on the snowball method, you have come to the right place.
Mentioned below is everything you need to know about the snowball debt management plan:
What is the Snowball Method?
The Snowball method is one of the most effective debt reduction strategies which allows you to slowly pay off your debts one by one. It approaches the debts in order of smallest to largest and gains momentum as you pay off each debt.
You start by paying off the smallest debt. Once it is all paid off, you roll the money you were paying for that debt each month into the next smallest debt. This way, you keep gaining more and more momentum by knocking down each debt.
How Does it Account for the Interest Fee?
Some debt repayment methods start by targeting the debts with the largest interest rates first so that you don’t have to keep paying extra interest fees. However, there is a big problem with this strategy. Suppose your student loan has the highest interest fees, it is going to take you a long time to even make a debt in that debt and you will end up losing motivation within a few months.
On the other hand, with the snowball method, you don’t have to care about the high-interest fees. You start with the smallest debt first, because it is the easiest to get rid of. Once you pay that off within a few months, you will get the motivation to keep going, plus with each debt, you will have more and more money that you can start directing towards your debt repayments. This way, you can eventually make your way to the top and knock down even the highest debts with ease.
Steps to Follow:
When you use the snowball method to repay your debts, here are a few things that you should keep in mind:
- Start by listing down all your debts from smallest to largest, irrespective of the interest rates;
- Then keep making the minimum payments on all your debts every month except for the smallest one;
- Direct as much money as you can towards the smallest one and try to pay it off as soon as possible.
- Repeat the process until all your debts are paid off.
The Bottom Line:
What makes the snowball method so effective is that it makes things easier for those who are having a hard time dealing with their debt. It is very simple to follow and easy to implement. Plus, it works every time, which is why people prefer it over other debt repayment methods.