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The Debt Snowball Method

For many of us, paying off debt is not easy. It is instead a constant struggle. For those that sit down and devise a plan on how to pay off multiple debts, there are numerous options. One of those is called the debt snowball method. We took a look at what is involved.

Origins

It was devised by a money guru by the name of Dave Ramsey .It is designed to help people clear debt as easy as possible, but it has its critics. you will soon see why. Its intention is to provide clear goals for those in debt, and create momentum in knocking off different debts.

How does it work?

It is the simplest of systems imaginable. Sit down and list all your debts. Then you arrange them in order of magnitude. But you order them from smallest to largest, not the other way round. You do not examine interest rates, just the outstanding balance. 

For all your debts, you continue to make the minimum payment, at least. This is essential, as of course you do not want to miss payments and incur extra fees or charges. Or destroy your credit health. 

Next Step

After minimum payments have been made against all your debt balances, any spare money, extra income, or money budgeted for clearing debts early should be put towards the debt with the lowest balance. This is the debt snowball method in action.

The method works by focusing on your smallest debt, and aiming to pay off that debt first, and as soon as is logistically possible. Once that is paid off, you move onto the smallest remaining debt. And so on.  Rinse and repeat until you pay off all debts.

The Pros Of The Debt Snowball Method

For many, the stress of debt, and especially multiple debts, is having so many different forms of debt hanging over them. It is psychological. Many simply find it easier to cope with one large debt rather than five smaller debts for a lesser amount. And for such people, the debt snowball method is worth considering.  Paying off debt is often about attitude and mindsets, and this method can be very effective in driving people on to pay off debt. It sets goals, and it feels great to pay off a debt. By doing the smallest debts first, you reach those goals quicker. 

The Cons Of The Debt Snowball Method

There is one very obvious con to the method. It costs you more money. Because the method does not prioritise the debt attracting the highest interest rates, it means that by the time debts are cleared, you will have paid more in interest charges. And by definition, the more interest charges you pay, the harder the debt becomes to pay off.  But for many, it is worth the extra costs. It is an individual choice of course.

Alternative

There is another way of course. If the thought of multiple debts is causing you endless stress, then the alternative is debt consolidation, that may have two advantages. You reduce your source of debt to one single debt, and you may also lower the costs. Sit down and do your research. See what is out there and if it is worth your while.

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