Using the “Debt Snowball” method is one of the best ways to eliminate your debt.
So what is a “Debt Snowball” and how do you “Snowball” your debt?
In the debt snowball method, smaller debts are paid first, regardless of whether they have higher or lower interest rates. When a smaller debt is paid off, the money that was going to pay it is then applied to the next smallest debt. Thus, the amount being paid to eliminate debts increases as each small debt is eliminated and the effect is that the overall debt reduction accelerates as larger and larger debts are eliminated. And, this is done without additional financial burden as time goes on.
Here’s how to “snowball” your debt reduction…
First, do an inventory of all or your payments. Write down the amounts of each debt and amounts of your payments on each one. Then choose the one with the lowest amount of debt and apply everything you can to paying it off first. Make paying off that small debt your number one priority. Pay as much as possible on it and get it paid off in the shortest possible time. Then, take they money you were paying on that debt and add it to what you are paying on the next lowest debt. Keep paying on the next larger debt until it, too, is paid off. Then add the money you were paying on the first two to what you are paying on the third lowest debt. Continue this process until you have paid all your debt and are completely debt free.
As you can see, paying off each of the lower debts increases the amount you can apply to the next one – it is snowballing! Then, just as a real snowball grows larger and increases in speed as it rolls down a hill, so too your debt snowball (the amount you are paying) will grow and you will be paying off your bills faster and faster!
It may seem that the snowball method is too simple, but it has proven to be one of the most effective strategies available for reducing and eliminating debt.
For more information about eliminating debt, see the list of articles on the left side of this page. One article that you may find particularly interesting is Getting Out Of Debt! The Harsh Realities.