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You may have heard of the debt snowball method when it comes to paying down your debts. What is it, and will it work for you?
There are two main ways to pay down debt. You can opt for the debt snowball method, or you can choose the avalanche method. I’ll discuss the avalanche method next week, but I want to focus on the snowball method for this week.
The snowball method is the one that I used years and years ago when I was in a lot of debt*. It’s the one that I recommend to a lot of my clients and friends, but that’s when I get to know the way they would benefit from paying down debt. I work with their personalities, and how I think they’ll benefit in the long-term.
What is the debt snowball method?
The snowball method is when you work with your debts in the smallest to largest order. Let’s say you have three credit cards. Card 1 has $300 on it, Card 2 has $1000 on it, and Card 3 has $5000 on it. Now, the interest rate for the $5000 debt may be the largest, but you may benefit the most from clearing the lowest credit card off. Contact a financial service provider uk if you need help managing or reducing your debts.
You’ll still pay the minimum amounts on the Cards 2 and 3, but your main focus is on Card 1 right now. You’ll want to put as much extra as you can on this one individual card to clear it off.
Once you have that $300 cleared, you move on to Card 2. Still pay the minimum amount on Card 3, but put as much extra as you can on Card 2. You’ll have a little more since you won’t need to worry about the minimums on Card 1 anymore.
Once Card 2 is cleared, you put everything you can on Card 3 until that is cleared.
I do recommend cutting up a couple of your cards, so you don’t use them anymore. Keep the one that has the longest credit history and close the others if you can. This is going to give you something for emergencies and you’ll help your credit score by keeping one credit card open.
Who the snowball method for debt works best for
A lot of people will tell you to clear the one with the highest interest rate—or the one that you end up paying the most interest on—first. Yes, this is good for people who can benefit from that method of debt reduction, but it doesn’t work for a lot of people. That wouldn’t have worked for me back in the day.
By working with the snowball method, you see that it’s working. You get to clear one of your credit cards (or loans), and that leads to a sense of accomplishment. If you need to see success to be able to keep going with your debt reduction, this is the way to do it. Additionally, consider enrolling in a debt management programme to further streamline your efforts and achieve long-term financial stability.
You’ll also free up some of your extra money sooner. You may be able to afford an extra $100 per month. That would clear your $300 credit card in three to four months (it all depends on when interest is applied) and then you have that extra $100 and the minimum you would have paid on Card 1 to move onto Card 2.
You don’t just have to do this with credit cards, either. You could have medical debts, a car loan, and even a student loan. You can keep doing this snowball method for every single debt you have. Check my source if you’re looking for a subprime auto loan. Cyberlead, Inc., will help you find the best option.
MORE: 3 tips to use your credit card to boost your credit score
What are you struggling with when it comes to money? Will the debt snowball method work for you? Share your thoughts in the comments below.
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