Do you have debt?
Have you struggled with paying off debt?
The average American household debt is $5,700 according to ValuePenguin.
But just thinking about your debt especially if you have lots of it, can be overwhelming.
Moreover, when it comes to paying off debt, many people don’t where or how to start.
Why? Because some people have multiple credit cards, car loans, personal loans, student loans, etc. with different balances and interest rates.
The Debt Snowball Method is the best method to pay off debt fast by helping you prioritize your payments. The Debt Snowball Method gives small wins and keeps you motivated and on track to become debt-free.
How the Debt Snowball Works
Here is a summary of the debt snowball method.
Step 1: List all debts (except your mortgage) from smallest to the largest.
Step 2: List the minimum monthly payment due on each debt.
Step 3: Pay the minimum due on each debt every month. Add more money to paying off the smallest debt.
Step 4: Once you have paid off the smallest debt, add that amount to the minimum payment of the second smallest debt and continue to pay the minimum on the other debts.
Step 5: Repeat the process until all debts have been paid.
The Debt Snowball in Action
|Debt||Balance||Monthly Minimum Payment|
The Debt Snowball Method Continued
Once you write down your debt, you will have a clear picture of what you owe and which loan to begin paying, which in this case is the $1,000. In this scenario, you will simply begin by focusing on paying the credit card loan first.
You do this by paying just the minimum payment on all your debts and then pay extra money on the credit card debt.
You can pay down debt faster by creating a budget, increasing your income, working side hustles, or selling things in your home that you no longer use and put the money you make towards this smallest debt.
Once credit card #1 is paid off, you move on to the credit card #2 debt. You would repeat the process of continuing to make the minimum payments on the other debts. Since credit card #1 is paid off, you now have an extra $50 to pay towards credit #2, including the minimum payment and any other extra money you earn.
In this case, after you have paid off credit card #2, you’d move on to the student loan, using the $50 minimum payment from credit card #1 and $100 minimum payment from credit card #2 plus all the extra money you make from your side hustle.
You’d continue the same process to pay off the medical bill and car loan until all your debts are paid off and you’re debt-free.
Focus on your smallest debt each month, pay the minimum payment, and any extra money you have towards that debt. You’ll be surprised at how quickly you pay your debt and be debt-free.
How the Debt Snowball Method Works Best
In essence, you’d pay your debts from the smallest to the largest regardless of the interest rate.
This process requires behavior adjustments to get the debt repayment plan to work as it should. The biggest step is to stop adding more debt to what you already have.
Why continue to add more debt if you are working towards eliminating your debt? There’s no way to get out of debt if you continue to add more debt. Condition your mind to get out of debt, using just cash only, and eliminating unnecessary spending.
If you don’t currently have a budget, start a budget and stick to it. A budget allows you to have control of your money, track your spending, focus on financial goals, save, and get out of debt.
A budget ensures that you will always have enough money for the things that you need and the things that are important to you.
Why this Method Works
This approach works because when you pay off the smallest debt first, you will be motivated to stick with the process until you pay off all debt and you’re debt-free.
We all like quick wins. The first time you pay off a debt, regardless of the amount, you will be so excited that you’ll be motivated to continue the debt pay off process. It will change your thinking process when it comes to spending money.
Knowing that you no longer have that debt, gives you such a high that you’ll do what needs to be done to pay off the other debts.
What about the interest rate?
The debt snowball method is the fastest way to reduce the number of debts you have instead of the total amount you owe. You may pay more interest in the long run with this method.
If you are concerned about the interest rate and you want to reduce the amount paid on interest, the debt snowball method may not be for you.
However, it may be overwhelming to begin the debt pay off the journey with a large, high-interest rate debt. Many people will become frustrated and sidetracked without the quick wins of paying off small debts first.
In conclusion, when it comes to paying off your debt, you need a plan. The best part about the debt snowball method is that it is easy, and anyone can do it.
Whatever debt pay-off method you decide to use will work if you are determined and focused on eliminating debt. However, you should tailor the pay-off method to fit your specific needs and goals.
Decide you are ready to get out of debt and start.
Are you ready to get out of debt? Start today by using the debt snowball method.
Do you think the Debt Snowball Method will work for you?
Please let me know in the comments below. If you have any questions? Reach out!
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