Hello and welcome to another Personal Finance Minute, where I answer your questions about personal finance in 60-seconds or less. Today’s question is… What is the debt snowball method?
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The debt snowball method is a strategy for reducing debt that puts psychology before math. If you have multiple debts and are current on all of your debt payments, it can be a great way to become debt free.
How do you use the debt snowball method?
Fortunately, using the debt snowball method to pay off debt is easy! First, write a list of all of your debts in order from smallest to largest total balance. Continue making the minimum monthly payments on each of your debts, and pay as much extra money toward the smallest debt as possible. Once your smallest debt is paid in full, proceed to the next smallest debt, and so on down your list. I mentioned earlier that the debt snowball method puts psychology before math. While there are mathematically faster ways for reducing debt, the debt snowball method is powerful because of the psychological effects of small victories. If you don’t get that sense of progress early on, it’s less likely you’ll follow through and become debt free.