What is the Debt Snowball Method
There are many ways to pay down debt, but by far my most favorite way to do it is by using the snowball method.
No, it doesn’t involve any real snowballs (Wouldn’t that be fun!), but rather, it requires that you create a list of all your debts in order of the balance, and work to pay off the account with the lowest balance first.
For instance, a hypothetical situation might look like this:
- Mortgage Balance: $240,000
- Car Loan: $18,000
- Line of Credit: $9,000
- Credit Card A: $5,000
- Credit Card B: $2,000
- Credit Card C: $800
By using the snowball method, you would pay off credit card C first (i.e. as your initial goal) and give yourself a big pat on the back as a first achievement. Then work on Credit card B, then A, etc. Since you’d have no more payment on the accounts that are paid off, the idea is that you could use that money to pay off the other accounts – thus supercharging the payoff period!
Is this (financially) the very best method? No, but in my own experience, this is a close second as it provides near instant gratification!