With student loans, a car loan, and balances on my credit cards, I found myself in debt – overwhelming debt. I was paying my debts on time, and when I had extra cash I’d throw some money at the debt of the day — whatever was nagging me most at that moment. But I was frustrated my debt wasn’t disappearing quicker. That’s when I found the snowball method.
Ask anyone in the world of finance how to tackle debt and most likely they’ll advise you to pay off debts with the highest interest rates first. It makes sense. You may save hundreds or more using this method. But for some of us we may have better success using what’s called the snowball method to pay down debt:
- Pledge to stop adding to your debt (create and stick to a budget!)
- Pay the minimum payments on all of your debts
- List your debts from smallest to largest (ignore interest rates)
- Tackle your smallest debt first. Put any extra funds you have in your monthly budget towards this debt. Got a tax refund or came across an extra $20? Apply it towards this debt.
- When it’s paid off use the money you were applying towards that debt to the next smallest debt.
This method has been proven to work for those of us who need small accomplishments to keep motivated. When I paid of my smallest debt — a credit card with a 26% interest rate — that sense of accomplishment drove me to tackle the next one on my list. It took me a few years and lots of discipline, but I reached my goal of being debt free and it felt amazing. Take a look at these videos from Better Money Habits to learn more about paying off debt.
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