Being in debt is not a pleasant situation one should find themselves in, it can really be overwhelming, it doesn’t matter the type of debt, it could be credit card bills or personal loans, whichever one it is, carrying such a heavy load can make it seem like you are stuck.
In the midst of all this, there’s a solution that could help you find reprieve from your indebtedness, it’s a proven strategy that has worked for many, it can help you take absolute control of your finances. It is the debt snowball method.
As we proceed in this article, i will explain to you how the debt snowball method works, I’ll explain to you how you can use it to pay off your high interest debt very fast and easily too.
What is the Debt Snowball Method?
The debt snowball method is a strategy that is used to repay debts. It is a debt repayment strategy that focuses more on paying off your smallest debts first, then you proceed to the next smallest, the circle continues until everything is completely paid off.
This method does not focus on paying the bigger debts first, rather it wants to pay attention on the smaller ones first, the idea is that, paying the smallest loans will keep you motivated and push you towards tackling the bigger ones, the idea is very simple, by paying off the smaller loans, you pick up momentum and with each debt you pay, you move closer to clearing everything.
How Does the Debt Snowball Method Work?
The Snowball method is not complicated, it’s almost self explanatory, Here’s a step-by-step breakdown of how you can implement the snowball method:
- List Your Debts from Smallest to Largest
The first step is by listing all your debts, please don’t include mortgage if you have one, now arrange them in order from the smallest to the largest for example, if you owe $500 on a credit card, $1,500 on a loan, and $3,000 on another credit card, your list would look like this:- Credit card 1: $500
- Loan: $1,500
- Credit card 2: $3,000
- Make Minimum Payments on All Debts: For each of the debt that you are owing, try to make sure you are at least making the minimum payment,the reason is to help you avoid late fee and keep your account in good condition
- Focus on Paying Off the Smallest Debt First: Once you are able to pay the minimum on all your debts, if there’s any extra money in your budget, use it and pay the smallest of debt
- Pay Off the Debt and Move on to the Next One After you’ve finished paying off the
The next step is to take the amount you were paying on that debt (including the minimum payment you were making) and apply it to the next smallest debt. With this, you are creating a “snowball” effect, where the amount you can put toward the next debt keeps growing as you pay off each one. - Repeat Until All Debts Are Paid Off: You should continue this process of making sure you are paying off the smallest debt first then moving to the next, keep doing it until all your debts are paid off.As you continue to pay, the snowball of your payments will continue to get bigger, before you know it, you’ve completely cleared all your debts.
How to Make the Snowball Method Work for You
For you to make the most out of the debt snowball method, here we’ve arranged a few practical tips for you to follow:
1. Create a Budget
Before you decide to pay down your budget, you absolutely need to create a budget, you need to pinpoint exactly where your money is going each month.
With a budget, you can easily track your income, how much you spend and the extra money you can use to repay debts.
You can use a simple budgeting method, like the 50/30/20 rule:
- 50% for needs (rent, utilities, groceries)
- 30% for wants (entertainment, pleasure out)
- 20% for savings and debt repayment
If it’s possible, I will encourage you to try to trim unnecessary expenses so more money can be at your disposal for paying off your debt.
2. Cut Back on Unnecessary Spending
You definitely need to look for ways to reduce spending and free up money for your debt snowball. For example:
- You can decide to cancel subscriptions you don’t use.
- It would be better to cook meals at home instead of eating out, outside is obviously expensive.
- You can find cheaper alternatives for things like entertainment and shopping, you could look towards secondhand and thrift because very little bit counts when you have a debt to pay off, so you need to be absolutely frugal where you can.
3. Try Considering Extra Income
If you’re able to increase your income, even if it is temporarily, you should go ahead and do it. you can use that extra money to speed up the debt snowball. options like:
- Freelancing or side gigs.
- Selling items you no longer need.
- Taking on temporary work.
With this extra income you can put it directly toward paying off your smallest debt.
4. Stay Consistent
Now one of the major keys to succeeding with the snowball method is by being consistent. Even if you find yourself in a situation where you can only pay a small percentage of your debts each month, just stay committed to that goal and don’t get distracted. As time goes on, you’ll pay your debt and your snowball will keep growing
Final Thoughts
Paying off debts isn’t easy, there will be so much pressure that at a time you might lose concentration. But the Snowball method of paying debts has really proven to be a game changer for some people. You should just stay consistent and focus on clearing your Smallest debts first, as time goes on you’ll completely clear everything.