Understanding the Snowball Method of Debt Relief

December 29, 2014, Written By Bill Hardekopf
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There are many ways to get rid of credit card debt or personal debt. One of the most used practices is the Snowball Method. With the Snowball Method for debt relief, you pay off your smallest debts first before getting to the bigger ones. Here is a look at how this system works so you can determine if it is right for you.

How the Snowball Method Works

With the Snowball Method, your goal is to get rid of as many accounts as possible in the shortest amount of time. This eliminates the stress of having unending collection calls, and allows you to tackle your debts one by one. You start with the debt with the lowest balance and progressively pay off all your bills. Near the end of this process, you should only have one large debt left to pay off. This is called the Snowball Method because it works much like rolling a snowball for a snowman. You start small and work up until you have accomplished your goal.

Example
Let’s say that you owe money on four credit cards, each with the following balances: $1,000; $10,000; $6,000; and $7,000. If you used the Snowball Method to get out of debt, you would pay the $1,000 card off first, then the $6,000 and so forth. Once you finished paying off the $10,000 debt, you would be free to enjoy your life without this debt hanging over you.

Variations to the Snowball Method

There are different versions of the Snowball Method you may want to test. For instance, some people will use this idea in reverse, and work it based on interest rates. Rather than paying the lowest balance off first, they will pay the balance on the card with the highest interest rate. This will definitely save you money because it allows you to reduce the amount of interest penalty. It may just take longer to get rid of that first account.

Additional Benefits of the Snowball Method

Aside from helping you get out of debt, the Snowball Method can help you feel motivated to pay off your debt faster. There is a certain sense of accomplishment that comes with paying off a credit card or a medical bill that you’ve had for a while. Once you experience that for the first time, you will want to experience it again.

The Snowball Method also allows you to establish a priority system for your debts, which you may not have at the moment. Rather than sporadically paying whatever bill is right in front of you, this method allows you to follow a plan until you are free of debt. Organization may not seem like a big deal when it comes to money management, but it is the key to avoiding similar mistakes in the future. Once you can check bills off your to-do list, you won’t be able to fall into debt as easily in the future.

How to Get Started

If you want to start working with the Snowball Method, you need to get a list of all your current debts. This includes the small accounts that you may ignore, like store credit cards. Compile the list and rank them by balance or by interest rate, depending on how you want to approach your debt. Then, figure out how long it will take to pay off each one. After that, you should be able to make a calendar that says you need to pay X, Y, and Z on specific, predetermined days.

The only way to make this method truly work is to commit to it. Don’t assume you can push back your bills just because you’re paying small debts. The goal here is to get rid of as many accounts as possible in a short amount of time so you don’t feel quite as burdened by your finances. Make a point to stay on schedule, no matter what happens. You’ll be able to use the habits you develop to better manage your money in the future.



The information contained within this article was accurate as of December 29, 2014. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.