If you feel like there is about as much chance of you paying off a growing debt burden as a snowball has of staying frozen in, well, you know where, then you may be on the right track. Using the debt snowball method to eliminate balances can help you see progress toward meeting your financial goals as you work, giving you the confidence and motivation to keep going. If you are unfamiliar with this method, keep reading to learn more.
How Does the Debt Snowball Method Work?
You’ll start by compiling a chart of all of your outstanding balances with their interest rates and payment terms. Include vehicle payments, loans, credit cards, medical bills and anything you owe money on.
Make a list of all of the minimum monthly payments for each creditor. Then figure out how much extra you can afford to pay toward a single balance each month.
Once you have that information, put that larger payment toward the smallest balance you have. This allows you to pay it off quickly.
If you are not able to realistically make these payments each month, it may be time to call a debt specialist, like those at Rescue One Financial, to help determine your next steps.
Related: Pay Off Debt And Save Money In 2020
Why Pay the Smallest Balances First?
Paying off a balance completely gives you a sense of accomplishment. You now have one less creditor and one less bill each month. For people who need to see results to maintain motivation, this is a huge deal. It helps keep them on track and lets them move on to the next smallest balance.
What About Growing Interest?
As you continue paying down debt, you’ll always pick the smallest balance from your list to pay extra on, even if it also has the lowest interest rate. That means the debt snowball method does not optimize interest savings.
If you are serious about paying off debt, destroy each credit card as you pay it off. This will ensure you don’t use it again to create yet another balance to add to your list. Work diligently and be proud as you watch the number of creditors dwindle.
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