How to get out of debt using the Debt Snowball Method

LEARNING OBJECTIVES FROM THIS ARTICLE:

· What is the debt snowball method?

· How does the debt snowball work?

· What are the advantages and disadvantages to the debt snowball method?

One of the biggest hurdles to overcome on your journey towards financial freedom is paying off all the debt you had to accumulate in order to, well, start the journey towards financial freedom (don’t you hate catch-22’s). Student loans, car notes, and living expenses all quickly piled up right at the moment you were taking your first steps into adulthood, but you don’t have to let these debt burdens define the rest of your life!

By following the Debt Snowball method, one of the most popular and easiest ways to pay down debt, you can jumpstart your debt-free journey and reach your financial goals in no time!

What is the debt snowball method?

The debt snowball method is a debt payment strategy where you pay off your debt in order from the smallest amount to the largest amount regardless of the interest rates.

The debt snowball method has proven to be successful for many people striving for financial freedom because you can see your progress over time and experience the satisfaction of paying off each debt. On the flipside, using the debt snowball method means that you’re not paying off your debt with the highest interest rates first, which could lead you to possibly paying more money over time due to interest.

How does the debt snowball work?

The beauty of the debt snowball method is in how simple it is to execute. Picture a snowball rolling down a hill that gradually increases in size and speed as it picks up momentum. Well, that metaphorical snowball is the additional money you can apply to pay down your debt.

Your smallest debt is the start of the snowball. When this debt is paid in full, roll the money you were paying on that debt into your next smallest balance so that the amount you pay on your next debt is bigger than what you normally would’ve paid.

The purpose of this strategy is for you to gain momentum as you knock out each of your debts — like a snowball getting bigger as it rolls down a hill.

To break it down, here are five easy steps you can follow to start your debt snowball:

Step 1: List all your debts (credit cards, car note, student loans, etc.) from the smallest dollar amount to largest dollar amount.

Step 2: Start a second column and list the minimum monthly payment due on each debt. You should make sure you’ve budgeted enough money to cover the minimum monthly payments for every debt to avoid late fees and negative impacts to your credit score.

Step 3: Pay the minimum amount due on each debt every month and add as much money as possible to paying off your smallest debt.

Step 4: Once you’ve paid off your smallest debt, add those funds to the minimum you were paying on your next smallest debt.

Step 5: When you finish paying off the second debt, rinse and repeat the formula until you’ve paid off all your debt!

What are the advantages and disadvantages to the debt snowball method?

As with everything in life, there are some advantages and disadvantages to following a particular course of action. At the end of the day though, is there really a downside to getting out of debt? With that said, here are some of the advantages and disadvantages to consider when following the debt snowball method.

Advantages of the Debt Snowball Method

There are numerous advantages to using the debt snowball method to get out of debt, but some of our time-tested favorites are:

1. The debt snowball method is really a motivational program. Each debt you pay off will motivate you, and help you build the confidence necessary to tackle your larger debts. These small wins compound and serve as the building blocks to greater success.

2. You’re more likely to stick to the plan when you can see the progress overtime.

3. The skills and habits you’ll build from paying off your debt and sticking to the plan will translate to other areas of your life.

Disadvantage of the Debt Snowball Method

There is really only one disadvantage to the debt snowball, and that’s the fact that you’re not taking interest rates into the equation.

By not paying off your highest interest debt first, you risk paying more money over a longer period time. If that is a major concern for you, and you believe you have the discipline, then you would be better off using the debt avalanche method — basically the same strategy, but you pay your debts with the highest interest rates first.

Conclusion

The debt snowball method is one of the best ways to pay off debt and build confidence in your ability to reach your financial freedom. By paying off your smallest debts first and then attacking each succeeding debt with everything you’ve got, you’ll soon be live life on your terms. Without any more debt payments, you now have the freedom to spend your money as you wish (we suggest building an emergency fund or investing in your future), freedom to do what you want without worrying about bill collectors, and no more obstacles holding you back from pursuing your dreams!

So, did the Debt Snowball Method work for you? What debt-free tips would you recommend for the community on the road towards financial freedom? Let us know in the comments section.