We all know someone who is really good at spending money that they don’t have, and it may even be you. The problem is that it is no longer just a bad habit, but more like an epidemic. We are so bad at managing money that we have to borrow it in the case of an emergency, which only adds to our issues. The influx of money might be helpful at the moment, but eventually you wind up with monthly payments that do nothing but cause problems in your monthly budget. If you are having trouble getting rid of your credit card debt or any other loan you might be paying on, you are in luck. The Snowball Method has been used successfully by tons of people.
(Disclaimer- I am not a licensed financial advisor, and you should use this post for research purposes only. While I will do my best to only give you the best advice that I can, you should always speak to a licensed professional before making any decisions about your money.)
What is the Snowball Method?
The Snowball Method is a popular way of slowly eliminating your debt payments over a period of time. Have you ever seen a cartoon where a tiny little snowball begins rolling down the side of a mountain, only to become a ginormous building wrecking sized Snowball? This is basically the idea behind the Snowball Method. You are slowly rolling your money towards smaller debts, in order to work up to knocking off your bigger ones.
How Does the Snowball Method Work?
The Snowball Method works by helping you to eliminate your smallest debt first. By eliminating your smallest debt, you can then use the money that you were paying on that monthly debt, to start paying off your next biggest debt. Once you pay off the second debt, you take the money out the money from the first and second towards the third. You keep working through from small to large until you are debt free. You can see how the smaller payments add on to each other like a snowball, giving you the extra money to tackle your high balance debts.
Keep in mind that you still have to be making the minimum payment on all of your debts to avoid late fees, collections, and a hit to your credit score.
Snowball Method Example
Let’s say that you have 3 different credit cards and a student debt loan. The credit cards are at balances of $1,000, $2,500, and $5,000, while you have $10,000 in student loan debt.
The first thing that you will need to do is to figure out a way to add some extra money to your payments on the $1,000 credit card. Obviously the more money you are putting in the faster it will be paid off.
Once you have paid off the $1,000, you will take whatever your monthly payment was, let’s say $75, and add it to whatever your monthly payment is on the $2,500 card.
Once you have paid off the $2,500 card, take both the minimum payments from the first and second credit card and put it towards the $5,000 card.
Finally, after the third card is paid off, you take the monthly payments from all three cards and put it towards your $10,000 student loan debt.
Now you have no monthly debt payments and your budget will be thanking you! Debt payments can be crippling for a lot of people, and paying them off will not only open up some flexibility with your money, but will also help you stress less and sleep a little bit better at night. I would suggest that you use all of the money that you were spending on your debt payments, and start putting them towards a savings, investment, or retirement account. This will help you stay out of debt for the future, so hopefully you never have to use the Snowball Method again!
Does the Snowball Method Really Work?
The Snowball Method only works if you want it to. You have to really make an effort to stay committed to paying everything off. Most people fail because they just can’t picture how they are going to pay off their debts, and the Snowball Method helps by setting little victories. When you pay off your first debt, you get a victory and the end seems a little closer. This is not the only method for paying off debts, but it is one that I truly think is good. Plenty of people swear by it, so the only way for you to know if it works is to try it yourself!
Thanks for Reading!
I really hope that you enjoyed this post and that it helped you to understand how this method can help you. Our goals financially should always be to stay out of debt and build up our savings, and that is hard to do with monthly debt payments dragging us down.
Take a second to leave a like, comment, or subscribe if you want to stay updated when new content is posted. Let me know if this method has worked for you or if you are going to try it out! Thanks for reading, and good luck!