DEBT SNOWBALL METHOD
How Does the Debt Snowball Method Work?
The debt snowball method is a strategy where you pay off debt in order of smallest to largest, gaining momentum as you knock out each remaining balance. When the smallest debt is paid in full, you roll the minimum payment you were making on that debt into the next-smallest debt payment.
Step 1: List your debts from smallest to largest regardless of interest rate.
Step 2: Make minimum payments on all your debts except the smallest.
Step 3: Pay as much as possible on your smallest debt.
Step 4: Repeat until each debt is paid in full.
Why Does the Debt Snowball Method Work?
The debt snowball works because it’s all about changing your behavior. You don’t have to hold a math degree or have gone to business school to beat debt.
An Example of the Debt Snowball
The easiest way to learn this method is by working through a real-life example. Let’s say you have four different debts:
- $500 medical bill—$50 payment
- $2,500 credit card debt—$63 payment
- $7,000 car loan—$135 payment
- $10,000 student loan—$96 payment
How to Track Your Progress and Stay Motivated
When it comes to living life on the plan, it can be easy to make trade-offs. For example, if you find $50 in an old coat pocket, will you go out to eat or put that toward your snowball? Your answer to this question could be the deciding factor of paying your debt off—even sooner.
Last weeks blog discussed budgeting this week is to get started implementing these free strategies.
Talk to you next Saturday!