Debt Snowball Method: Why Its Positive Psychology Is So Effective

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Looking for a way to make your credit card debt vanish? Wish you could make like Harry Potter, waving a wand and shouting “Evanesco!” to make your debt-poof-disappear? Searching for your own Room of Requirement that will conveniently contain some sort of debt-relief potion?

Debt Snowball Method: Why Its Positive Psychology Is So Effective

While it’s unlikely that a trip to Hogwarts is in the cards to improve your finances, there is another (albeit less magical) option: the debt snowball method. In this article, we’ll go over what the debt snowball is, the steps to follow, and why exactly it’s so darn effective.

Define Debt Snowball Method

The debt snowball method is a debt relief method that focuses on eliminating your smallest debt amounts first. You’ll continue to pay the minimum amounts on all your debts, but any extra money left over will go toward your smallest debt balance. Once that’s fully paid off, you’ll focus your attention on the second-smallest debt and so on.

How To Follow The Debt Snowball Method

Here are 5 steps to follow using the snowball method:

1. Create a list: List out all your debts by name and amount. Then, sort them in order of smallest to largest balance. This will be the order you follow to pay them off.

2. Pay the minimums: Pay the minimum monthly amount on every debt. This will help you avoid having to pay late fees and damaging your credit score.

3. Put extra toward the smallest debt amount: Any extra money you have will go straight toward the debt with the smallest balance. You’ll keep repeating this cycle until the smallest debt is completely paid off.

4. Focus on the second-smallest debt: You’ll follow steps #2 and #3 until the second-smallest debt has been paid.

5. Stick with it: You’ll keep going with the debt snowball method until your debts are done-zo.

Why The Debt Snowball Works

The snowball method works because its small victories are very motivating. Watching your debts get paid off one by one can help you stick with the plan, rather than get frustrated that it’s taking too long.

While other payoff plans, such as the debt avalanche method, can be more effective in saving you money, the debt snowball is ultimately best for encouraging people to stick with paying off their balances.

Other Debt Relief Methods

Other debt relief methods you should consider include:

  • Debt avalanche method: Like I just mentioned, the debt avalanche method is similar to the debt snowball method in that you pay your minimum amounts. However, instead of putting extra money toward the smallest debt, you’ll funnel it toward the debt with the highest interest rate. Once that’s paid off, you’ll focus on paying down the second-highest interest rate. The debt avalanche can save you money overall since you’re kissing those high-interest rates goodbye.
  • Balance transfer: With a balance transfer, you consolidate your existing credit card balances onto a new credit card that has a 0% APR promotional period (that typically lasts 12-18 months). You’ll focus on paying off all your debt during this 0% window. Note that you’ll need a good credit score to qualify for a balance transfer card. And if you can’t pay all your debt off during this intro period, you could be stuck paying an extremely high-interest rate.
  • Debt consolidation loan: With a debt consolidation loan, you get a lump sum of money to repay some or all of your debt. By doing this, you effectively combine multiple debts into a single monthly payment as you repay your loan. Debt consolidation loans are only worth pursuing if your credit score is good enough to get approved for a lower interest rate—that way, you can save money on interest in the long run.

Conclusion

There you have it: your own debt-relief ‘Avada Kedarva’ that can murder your debt for good. Exercise caution when using this powerful payoff method. You may find that your unpaid bills will be gone forever.

Stefanie Gordon

Stefanie started her career as a journalist, covering options, futures, and pension funds, and she most recently worked as a writer and SEO content strategist at a digital marketing agency. She enjoys teaching Pilates and spending time with her daughters and Siberian Husky in her spare time.

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