What's the Debt Snowball method?

Wednesday, March 22nd

What's the Debt Snowball Method?

If you've been looking at ways to pay off your loans, you may have run across the term "Debt Snowball". But what is it, and how does it work?

Debt Snowball explained

When you start any big project, like paying off your loans, it's easy to become overwhelmed and frustrated. Where do you start? How do you know if you're making any progress?

That's where the Debt Snowball kicks in. With this method of loan repayment, you focus on paying your smallest loans first. Of course, you make the minimum payments on all of your loans - but anything extra goes toward paying off the smallest one.

Once your smallest loan is paid off, throw yourself a little celebration! Go out to dinner, or watch a movie you've always wanted to see. You've accomplished something terrific!

Then what?

Then, take the amount that you were paying toward your smallest loan, and add that to the minimum amount you're paying on your next smallest loan. Once that next loan is paid off, take the amount you were paying toward it, and add it to your minimum payment on your next smallest loan.

Do you see how, with each loan you pay off, the amount you pay toward the next loan increases? That's why it's called the Snowball method. It's like rolling a snowball downhill - the snowball keeps getting bigger and bigger, just like the amount you're paying on your next smallest loan.

The Snowball Method is a great idea. The victories that you get from paying off each loan help keep you motivated toward paying off the next one. It's fun to see your loans get eliminated, one by one.

Here's an example

Let's say you have 3 credit cards - one with a $200 balance, one with a $700 balance, and one with a $1,200 balance. With the Debt Snowball, you would make minimum payments on the $700 and $1,200 credit cards, and put any extra money you have toward paying off the card with a $200 balance.

Once that first card is paid off, you then take the amount you were paying on it, and add it to the minimum payment for the $700 card. And once that card's paid off, you take the amount you were paying and add it to the payment on the $1,200 card.

The good thing about this plan is you see your loans dropping off one by one.

The term "debt consolidation" is often thought of as simply receiving a loan, but that's not the full picture. Debt consolidation involves combining your current loans into one single payment, usually at a reduced rate that can save you a lot of money. If you have ever heard of a loan consolidation company, then you may already know how the process works. If not, let's see how loan consolidation can work for you.

How much money can I save with debt consolidation?

That's a great question. Of course, the amount of money you save will depend on factors such as how much you owe, how many loans you have, and what your credit score is.

However, we discovered some real-world examples that you should find interesting. These are numbers from actual customers who've utilized the services of a debt consolidation company.

• Old Loan Amounts shows how much money they owed
• Old Interest Rate shows the APR they were paying on their loans
• New Interest Rate shows the interest rate they paid on their new consolidated loan
• Money Saved shows how much money in interest they saved over the life of the loan

This proves that the money-saving benefits of debt consolidation are real!

Financial freedom

Whichever method you choose, paying off your loans can give you the keys to financial freedom. It's certainly worth your time to find the best approach that works for you.