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Making The Debt Snowball Method Work For You

6-minute read

Do you struggle to motivate yourself when it comes to paying off debt? Does paying your bills each month feel like you’re painstakingly chipping away at a never-ending mountain? Have you tried other debt reduction tactics, only to get frustrated from lack of progress and give up after a few months?Debt reduction methods are like diets: The best one is the one that you can actually stick to.If you feel like you’re getting lost under a pile of debt, carving out an easy(ish) win may be the key to getting on the right track. That’s where the debt snowball method comes in.

What Is The Debt Snowball Method?

The snowball method of debt elimination takes advantage of the psychology of positive feedback.

The conventional wisdom when it comes to paying down debt is that you should focus on paying your highest interest debt first to save yourself the most money. However, if your highest interest debt is also your largest one, you might have difficulty sticking to your plan to pay it down.

The theory behind the debt snowball method is that you’re more likely to continue paying off debt if you focus on the smaller, shorter-term goal of paying off your smallest debt first. Because this debt is the easiest one to pay off, you’ll pay it off sooner and feel a sense of achievement when you see your account balance hit zero. That sense of achievement motivates you to keep going.

Think of playing in the snow as a kid. You start with a regular snowball that’s small enough to fit in the palm of your hand. But if you set in on the ground and start rolling it in the snow, it gets bigger and bigger. It’s all about building on the work you’ve already done and using that momentum to keep forging ahead, freeing up more money in your budget for debt payments and accruing bigger and bigger wins as you go.

How Does It Work?

The basic principle is this: You make minimum payments on all but your smallest debt. On that one, you put as much toward it each month as your budget will allow. Because the debt is smaller, you can pay it off relatively quickly. When you’ve paid off that debt, not only are you motivated to keep going, but you’ve freed up more funds to funnel into your larger debts. As you work your way up to your largest debt, you’ll have the payment amounts from your previously paid off debts to help you tackle it.

Let’s look at an example.

Say you’ve got a student loan, an auto loan, a medical bill and you regularly carry a balance on your credit card. List these debts from smallest to largest. For example:

  1. Medical debt: $2,000
  2. Credit card: $5,000
  3. Auto loan: $10,000
  4. Student loan: $20,000

Since the medical debt is the smallest, that’s the one you’ll start with. You’ll make minimum payments on all the other debts and aim to make more than the minimum payment each month on the medical debt. The goal is to put as much money as you can towards this debt until it’s paid off.

Once you’ve paid off the medical debt, you move onto your credit card debt, adding the amount you were spending each month paying off your medical debt to what you’re currently paying towards your credit card debt. So, if the minimum payment for the medical debt was $100 and you were able to pay another $100 on top of that, that extra $200 a month rolls over to your monthly credit card payment.

Keep going like this until you’ve paid off all your debt.

Why It Works

People often don’t act completely rationally when it comes to money. Even when a certain financial decision makes the most sense or the math is clear about what the best option is, all sorts of emotions and cognitive biases can lead people to act less than rational when money is involved.

For example, researchers in the U.K. found that people tend not to make their debt payments based on how much interest they could be saving themselves, but instead based on the amount they pay on the size of the balance, making larger payments towards their largest balances.

If you’re thinking about how you can pay off your debt in a way that makes the most sense, you’re already ahead of the game. But strategizing how you make your debt payments is only the first step, and all the math in the world won’t help you if you don’t stick with your chosen technique.

The debt snowball works with your psychology, rather than forcing you to rely on willpower alone (which, it turns out, isn’t a super reliable way to achieve your goals).

This method is even backed up by data. In a study published in the Journal of Consumer Research, researchers found that consumers tend to make more progress toward eliminating debt when they focus their payments on one account at a time as opposed to making equal payments to all of their accounts.

When the researchers tried to figure out why this might be, they found debt reduction strategies (like the snowball method) that focus on concentrating payments to the account with the smallest balance give consumers the largest boost to their sense of progress and therefore give them the most motivation to continue.

Money is emotional, and debt is particularly so. To get out of debt, feeling good about yourself as well as hopeful about your ability to do it can be significantly more important than utilizing the most “logical” strategy.

Is The Debt Snowball Right For Me?

If crossing items off your to-do list brings you a lot of joy and motivation, the debt snowball method might be a good fit for you.

However, you should take some time to first figure out whether it makes sense for you and your current situation. It may be worth it to create a spreadsheet to map out what debt reduction would look like for you on the snowball method compared to paying off your highest interest debts first.

If your combined debts are so large that they feel insurmountable, a better step may be to look into debt relief options or to speak with a professional, such as a credit counselor.

That said, if you’re still creating more debt for yourself, talking to a professional is likely a better option so you can address the root of the issue.

How To Afford More Than The Minimum

This is all fine and good provided you have the funds to make larger payments on any of your debts. But those who are stuck in cycles of debt might not have much wiggle room in their budgets, especially if they’re living paycheck to paycheck.

Take some time to evaluate your regular spending and identify areas where it would be possible for you to cut back. Are there things you’re paying for that you could cut out (at least temporarily) while you work on paying off your debt?

You might also want to consider ways you can increase your income so you have more money to work with. Picking up a side hustle or a temporary gig can make paying down the debt easier.

It’s also important to avoid going even further into debt while you’re working to pay down what you already owe. Before you start the snowball method, it’s a good idea to focus on saving at least a small emergency fund. That way if any unexpected costs arise, you won’t have to take on debt to cover them.

Once You’re Out, Stay Out

Once you’ve paid down your current debts, you probably want to avoid going back to a situation where you feel overwhelmed by the amount of debt you owe to your creditors.

This isn’t to say you can’t ever take out another loan or use a credit card ever again. Life is unpredictable, and you may end up needing to take on debt again at some point. The important thing is that you avoid getting caught in a cycle of debt or taking on more than you can handle.

Taking on debt can sometimes help you do things that you otherwise wouldn’t be able to do, like afford college. However, the key is to keep it manageable and do your best to pay it off in a timely and cost-effective manner.

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