Last Money Monday, we talked about the Debt Avalanche Method of paying off your debt. Today, we will talk about another way, the Debt Snowball Method. I know…what is it about these ways of paying off debt that has to do with snow? Maybe it’s because if you don’t pay off your debt, you’ll find yourself out in the cold (haha). But I digress. The Debt Snowball Method will not pay off debt faster than the Debt Avalanche Method, but it will help with something else. But first, let’s learn how the Debt Snowball Method works…
How It Works
The Debt Snowball Method works just like the Debt Avalanche with one major difference. You still need to write down all your debts and prioritize them in order. But the order of priority is with the lowest debt amount at the top of the list, NOT the highest interest rate at the top. You then throw as much money as you can at the top one on your list. You still need to make the minimum payments on all debt, but you put all your extra money and payments towards the debt with the least amount, regardless of the interest rate. Once you pay off the first debt, you take all the money you were putting on the first one and apply it to the second one in the list. The snowball is starting down the hill!!!
Won’t That Take Longer?
Yes, this approach will most often take longer, but you take this approach for that “something else” I mentioned above. That “something else” is motivation. What typically happens to many people is they start off with the Debt Avalanche Method and make a few payments. But then they lose motivation, skip a few months of payments, and eventually lose momentum in paying off debt. With the Debt Snowball Method, you pay off your debt with the least amount first. Typically, this can be done in just a few months. Once the first debt is paid off, you will get that win of paying one off. You can use that momentum to pay off the next debt. The snowball is rolling in the right direction, you just have to keep it rolling.
The short of it is that the Debt Snowball Method can be the best approach to paying off debt if you are the kind of person who needs a little more motivation in paying off your debt. Both the Debt Snowball and Debt Avalanche methods require you to write down your debts and make extra payments on one debt, but the Debt Snowball Method prioritizes paying off the debt with the least amount, not the one with the high interest rate, like the Debt Avalanche Method.
Regardless of the method you choose, the point is you need to stick with making those extra payments, focused on one debt, until you knock it out. If you are someone who needs more motivation and quicker wins, then use the Debt Snowball Method. If you are someone who is a bit more disciplined and can be patient, knowing you are moving in the right direction, then use the Debt Avalanche Method. Either one has you moving in the right direction. Choose one today and get to paying off that debt!!!