Pay Off Debt Using the Snowball Method
If you are struggling with debt, you are not alone. According to CNBC, the average American has $90,460 in debt that may include credit card debt, personal loans, student debt, and mortgage debt.
As people are looking for ways to work their way out of debt, a common and popular debt pay-off strategy is the snowball method. . The snowball method is paying off your debts from the smallest to largest debt. As you pay off the smaller debts, you will be able to add an additional amount to the next smallest debt, until you finish paying off all your accounts.
Here’s how it works:
Step 1. List out your debts in order from largest to smallest.
Step 2. List out your minimum payments next to all of your debts.
Step 3. Continue to make minimum payments on all of your debts except for the lowest one. Instead of making the minimum payment on the smallest debt, increase this payment amount as much as possible.
If income is the problem, review your budget and cut expenses where possible. Another option for extra income is starting a second job or working extra hours at your primary job until your debt is paid off or under control.
Step 4. Once the smallest debt is paid off, take that monthly payment and add it to the next smallest debt.
After 6 months, Credit Card B is fully paid off. We’ll take the $300 that we used to pay off Credit Card B and add it to the next smallest debt, Credit Card A. Instead of paying the minimum amount of $312 per month, we’ll pay $612.
Step 5. After some time and hard work, your debt will exponentially decrease. It is imperative to not acquire additional debt during this time and make sure you have an emergency fund if an unexpected expense occurs.
The snowball method is not for everyone. It requires a steady monthly income flow to meet all of your minimum payments and other expenses. If income is the problem, review your income and budget to determine where you can cut certain expenses where possible. Other options for extra income are starting a second job or working extra hours at your primary job until your debt is paid off or under control. Having enough income to pay off your debt is important to accomplish your debt-free goal. It is critical that you do not acquire additional debt while paying off your debt because it can be detrimental and can set you back.
If you’ve ever used the snowball method (or another debt payment method) to pay off debt, comment below with any additional tips or information for others to know.