80% of Financial Advisors Disagree with Snowball Method of Debt Repayment
The Snowball Method of debt repayment says you should pay off your smallest debt first and then work your way up to the large ones. This gives you psychological motivation to eliminate your debts.
While many consumers like this idea, four out of five financial advisors say it’s better to work with the Mathematical Method, according to a recent survey.
The Snowball Method, made popular by such personalities as Dave Ramsey, is designed to help people see how easy it is to pay off debt. Once they see one debt go away, they are inclined to work hard to pay off other debt. Successfully paying off one debt helps eliminate stress, and ultimately encourages people to pay off their other debt faster.
One of the benefits of the Snowball Method is that it slowly eliminates the need to make minimum payments on several accounts, eventually allowing you to make greater payments to the larger debt. For example, rather than paying $100 to three or four companies each month, you will eventually get down to paying one company. In some situations, this could save you some interest penalties in the long run.
But the survey indicates that financial advisors prefer their clients pay off their debts based on their interest rates. Getting rid of high interest accounts as soon as possible helps save the most money in the long run.
No matter which method is used, it is important for consumers to make a plan to pay off their debt. And to stick to that plan. That is the key to improving your financial future.