Roll On Over to the Debt Snowball Method
Paying down debt seems straightforward: you borrow, you pay back, you don’t owe anymore. Ha! If only it were that simple. The truth is, it’s all too easy to get behind in payments and watch the total amount you owe grow exponentially due to that pesky thing called interest.
The proof? The average American household owes $137,063 in debt (including mortgages). But fear not, Nav.igators: Having debt doesn’t mean a life sentence of eating only ramen and living in your mom’s basement. (Just take it from our friend, Whitney, who paid off her debt and celebrated in Hawaii.)
The snowball method will help you chip away at your debt little by little, building your financial momentum from a handful of flakes into a big beautiful snowman of fiscal responsibility.
It’s less about the money and more about your mindset.
You might have heard of this debt-reduction technique from a guy named Dave Ramsey, a multi-hyphenate entrepreneur and author of several financial advice books (NBD). He’s made debt snowballing a cornerstone of his business helping people get out of debt.
According to Ramsey, the true value in this method is the effect it has on your morale. “It’s designed to modify behavior,” Ramsey says. “It lights your fire. Once you get a few quick wins under your belt, you’ve got momentum!”
The process goes like this: Pay off your debts one at a time, from smallest to largest dollar amount, regardless of interest rate. After you eliminate the smallest debt, you apply the same amount of money you were putting toward that debt to the next highest one, and so forth.
The more money you can put toward your payments, the quicker it goes. Just like a snowball rolling down a hill, you’ll build debt-busting momentum the faster you move.
Keep the ball rolling.
Debt snowballing is all about motivation, and while you might think that’s a little hippie woo-woo for you, it’s actually been scientifically proven to work.
A 2016 study in the Journal of Consumer Research found that focusing on one debt at a time (instead of paying down multiple debts simultaneously) was more motivating to debtors, especially when they paid off small debts in quick succession (a.k.a. “snowballed”).
All you type-A’s who get exhilarated by checking items off your to-do list know exactly what this feeling is like. It’s all about the little victories.
Is the snowball right for you right now?
Debt snowballing will work, but just like anything else with finance, it really depends on your current situation. “Some people eliminate debt faster than others, but everyone who sticks with it will get rid of debt,” Ramsey says.
Debt snowballing is just one of many strategies for paying off debt. So, it’s totally worth asking yourself if plowing through your debt is the best strategy for you. Are you more concerned with paying the least amount of interest possible? Or are you more concerned with building up savings first?
Answer that question and you’ll be on your way to strategizing your debt escape plan.