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Snowball Method: What is It?

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Len Penzo
Snowball Method: What is It?

Of all the different methods of paying back debt, the debt snowball method is easily one of the oddest. The kicker here is that the repayment system is based on a psychological argument, more than a strictly mathematical one. While perhaps unconventional, with the jury still out on its use, many believe it can be effective in the right hands.

What is the debt snowball method?

So, what is the debt snowball? In simple terms, the debt snowball method is one that espouses focusing first on the smallest debt that you have and continue working your way upwards to the more expensive repayments. The idea here is that this method of repayment will make it easier to directly map your progress, and so you'll better internalize the progress your debt repayments are making.

Once one debt is paid off, your feelings of accomplishment are supposed to help you move onto the next tier. This pattern then repeats until you overcome each new challenge, with your final foe being the largest repayment you have to work towards. In some cases, this can prove a viable alternative to a debt consolidation loan, other times it’s not an ideal choice.

How should you use the debt snowball method?

As with any time you work on making repayments, the best way to approach the debt snowball method is to first come up with a plan. Follow these simple steps, and you should be well on your way to making a dent, and earning a better credit score.

Step 1

The first thing you need to do is create a list of every one of your non-mortgage debts. Then, simply put this list in order from smallest to largest amount owed.

Step 2

When making a snowball payment, you have to first pay the minimum balance of each of your debts. The only exception is the smallest balance: you’ll want to pay as much towards that as you can without risk to your greater finances.

Step 3

This means the smallest balance in the debt snowball will be paid off first. Once that's done, you can then put the extra money from this balance into the next largest debt. Just be sure to remember to keep paying the minimum balance for your other repayments, otherwise, the snowball method of paying off debt will melt before you get a real chance.

Step 4

You can continue reducing the debt snowball until the largest debt has been repaid.

Advantages of the debt snowball method

The primary advantage of the debt snowball method lies in its ability to help us feel in control. When taking a look at a large list of debts from our purchasing lives and a personal loan or two, we can easily feel overwhelmed.

This negative effect on our mental states can make us give up before we start, or feel oppressed at what appears to be a constant lack of progress. As we work with the debt snowball method, we can see our debts slowly ticked off. Each step marks visible progress.

Disadvantages of the debt snowball method

In a mathematical sense, the debt snowball is never going to be the most cost-efficient way to pay back everything you owe. This is because larger debts will pull down more interest, making them more expensive in the long-term.

Snowball credit card debt is a big factor in this regard, which makes this system of repayment not the perfect fit for everyone. In some cases, the avalanche repayment method, which targets your highest-interest balance first, can be a better idea. In other instances, you might need to look for further options.

Bottom line

The debt snowball method can be an incredibly powerful repayment method, but it’s not for everyone. By focusing on paying your smallest debts back first you can generate a much more positive mental outlook towards the future, but you will also be facing bills for a longer period.

Deciding if this method is right for you means looking at your financial situation in depth, measuring the different options, and taking into account what is most important to you. When it's the right fit, this method can be great, otherwise, it can be better to turn to an alternative solution.