Paying Off Debt: The Debt Snowball Method

Feeling overwhelmed by debt? You're not alone. Many people find themselves in a similar situation, but there's a powerful and motivating strategy that can help you break free: the Debt Snowball Method. This approach focuses on building momentum and confidence as you pay down your debts, one by one.

What is the Debt Snowball Method?

The Debt Snowball Method is a debt reduction strategy where you pay off debts in order from smallest balance to largest balance, regardless of the interest rate. Once the smallest debt is paid in full, you take the money you were paying on that debt and add it to the payment of the next smallest debt. This creates a "snowball" effect, where your payments grow larger and larger as you eliminate each debt.

Example:

Let's say you have three debts:

• Credit Card A: $500 (Min. Payment: $25)

• Credit Card B: $1,500 (Min. Payment: $40)

• Car Loan: $10,000 (Min. Payment: $200)

And you have an extra $50 per month to put towards debt.

1. You'd pay $25 on Credit Card A + $50 extra = $75.

2. You'd pay $40 on Credit Card B.

3. You'd pay $200 on the Car Loan.

Once Credit Card A is paid off, you'd then pay:

• $75 (from Credit Card A's previous payment) + $40 (Credit Card B's minimum) = $115 on Credit Card B.

• You'd still pay $200 on the Car Loan.

When Credit Card B is paid off, you'd then pay:

• $115 (from Credit Card B's previous payment) + $200 (Car Loan's minimum) = $315 on the Car Loan.

This creates a powerful psychological boost as you quickly eliminate smaller debts, giving you the motivation to keep going.