The Debt Snowball Method

admin March 26, 2013 1

You have likely by now heard somewhere that in order to get out of debt for good, you should aim to pay off your debts with the highest interest first.  Websites, consumer forums and even some newspaper articles all help to support this theory.

However it is incorrect, and I will tell and show you how/why!

Conventional wisdom and mathematics tells you that in order to get out of debt quickly, you should pay high interest debts first to get out of debt quickly.  In spite of that, from experience gained personally and through the experiences of friends and family, that a lot of getting out of debt is mainly (not all but a large percentage) down to an individual’s financial behaviour and personal motivation.  In order to get up a good head of steam in getting out of debt, you need to see some results pretty quickly to stay motivated in getting out of debt.  High interest rate debts can take much longer to pay off than smaller interest rate debts, so by clearing the small ones first you will see debts disappear quickly and get an extra boost of motivation in your financial struggle.

The main idea behind the debt snowball method is to focus on one debt at a time.  Now this doesn’t mean neglecting your other repayments, you should continue to make the minimum repayment each month until it is time to move onto that debt.  This is because not focusing your efforts on one debt at a time means your attention is being pulled in several directions at once.

Before starting the debt snowball method, you should build up an emergency fund of approximately £1k that you can use to fall back debt snowball ukon if your situation gets worse while you are fighting your way out of debt.

It is easier to implement the debt snowball method if you begin by making a list of all of your outstanding debts.  It doesn’t have to be on a spreadsheet, it could be on a piece of paper, however it can be easier using a spreadsheet to sort and arrange your debts in order of either balance or interest rate.  You could even sort your debts by outstanding balance and then interest rate to increase the quality of your organization of your debts.  Tackle the smallest debts first, they “disappear” quicker and you will feel quite good about yourself when you see your list of debts get smaller and smaller.

Each time you completely clear a debt, re-do the above steps.  You will see from your overall debt figure that the balance is reducing, as well as the number of outstanding debts you see listed also falling.  Not a lot better things to see than you owe less people less money!  The new payment you should make is calculated by totalling up the payments you were making on the debts above the current target debt on your original list.  The reason for this is that it allows your repayment to continue to grow as you clear your debts, which helps clear them quickly.

So there you have it, simply laid out the debt snowball method which helps to get you out of debt quicker than any other debt solution.  Go for the smallest debt first, keep making minimum repayments on everything else, use the payments you were making before towards paying the next debt on your debt ladder.

Being in debt can be a very worrying time for anyone, but once you get locked into a positive mindset and see positive results you can literally achieve anything!

One Comment »

  1. Nicola August 12, 2013 at 4:43 am -

    Interesting technique on clearing debt. I have read a few articles about snowballing, and from what I have read there are a lot of different views on whether the technique is effective.