Paying Down Debt with the Snowball Method
What is the Debt Snowball Method?
For individuals and families looking for tips to pay off debt and increase savings, the debt snowball method is likely to show up among top search results. Popularized by radio host Dave Ramsey, the snowball method is a debt-reduction strategy where you’ll prioritize your debts in order from those with the smallest balance to the largest.
It’s important to continue making at least the monthly minimum payments on all of your debt obligations so you avoid late fees or damage to your credit score.
Then, focus remaining available funds toward paying off your smallest obligation first. Once that’s paid off, roll the amount you used to pay to the first loan into paying off your next-smallest balance. Like a snowball gaining mass as it rolls down a hill, the debt snowball method helps you start small and gain momentum.
Does the Snowball Method Work?
If you’re wondering about the math of the snowball method, you’re not alone.
An alternate strategy, called the debt avalanche, suggests that you prioritize debts from highest to lowest interest rates. Although the calculations support the avalanche method in theory, the snowball approach shows better outcomes in practice. It may take a long time to reach your first pay-off via the avalanche, which increases the likelihood that you’ll lose track of progress and give up on your efforts.
The snowball method is designed so you’ll start paying off debts early on, and the resulting emotional victories will go a long way toward keeping your efforts on track.
Get the Ball Rolling Faster
While the snowball method is a proven strategy that can help you stay motivated and focused on your path to pay off debts and save more, it’s not the only tool that can help. If your balances
carry high interest rates, you may benefit by refinancing to secure a lower rate. Lanco FCU offers excellent interest rates and terms on vehicle loans, personal loans, and credit cards.