What Is the Debt Snowball Method?

The debt snowball method focuses on paying off debts from smallest to largest balance, regardless of interest rates.
- How It Works: Start with the smallest debt for quick wins, which can keep you motivated. Once the smallest is paid, roll that payment amount into the next debt, creating a "snowball effect."
- Comparison: This differs from the debt avalanche method, which targets debts with the highest interest rates to save money but can take longer for a first win.

How to Use the Debt Snowball Method

• List All Debts
• Arrange debts by balance, from smallest to largest.

• Ignore interest rates for this method.

• Pay Minimums on All Debts

• Ensure all debts receive at least their minimum monthly payment.

• Focus on the Smallest Debt

• Put any extra money toward the smallest debt while continuing minimum payments on others.

• Roll Payments Forward

• Once the smallest debt is paid off, take its payment amount and apply it to the next smallest debt.
• Repeat until all debts are cleared.

Example

• Debts:
• Hospital bill: $1,200 (0% interest)
• Credit card #1: $3,000 (15.9% interest)

• Credit card #2: $5,000 (22.9% interest)

• Steps:

• Pay off the hospital bill first.
• Apply that payment amount to credit card #1 next.
• Finally, tackle credit card #2 with the largest snowball.

Boosting Your Progress

• Lower Interest Rates:
• Consider balance transfer credit cards or debt consolidation loans if your credit score improves.
• Debt Snowflakes:
• Apply small daily savings (e.g., skipping coffee runs) to your debt.
• Increase Income:
• Pick up a side hustle or negotiate for raises.
• Cut Costs:
• Lower bills by negotiating with service providers or adjusting spending habits.

Debt Snowball vs. Debt Avalanche

• Debt Snowball:
• Best for: Motivation through quick wins.

• Drawback: Potentially higher total interest costs.

• Debt Avalanche:

• Best for: Minimizing interest paid overall.
• Drawback: Takes longer for the first debt payoff.

Who Should Use the Debt Snowball Method?

The debt snowball method is ideal if:
- You’re motivated by small, quick victories.
- Your debts are manageable and can be paid off in under 5 years.

If your debts feel overwhelming or would take more than 5 years to clear, explore other options, such as debt relief programs or credit counseling.

Final Tips

• Celebrate milestones to stay motivated.
• Avoid taking on new debt during the process.
• Use tools like budgeting apps to track your progress.

By staying consistent and building momentum, you can tackle your debt and achieve financial freedom!

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