2021 trends include puff sleeves, Bermuda shorts, and anything nautical. But you know what’s never in style? Debt. Being in credit card debt is damaging in many ways. The more you borrow without paying it back, the more you consistently owe in interest. Debt makes achieving your financial goals much more difficult and can also prevent you from fixing your credit score.
If you’re currently in debt, don’t despair—there are payoff strategies that can help you become debt-free, such as the debt snowball method. In this article, we’ll explain what the debt snowball is and snowball method steps that can help your financial situation.
What Is The Debt Snowball Method?
The debt snowball method is a debt payoff strategy that focuses on paying off the smallest debt amounts first. The idea is that by eliminating smaller debts, you slowly build up momentum toward your larger debts. To further reduce your debts, you can consider refinance my house consolidate debt.
4 Steps Of The Debt Snowball Method
Here are the 4 steps of the snowball method:
1. Write And Sort Your Debts
The first thing you’ll need to do is create a complete list of all your debts. Write down the name, total balance, and the minimum monthly payment. Once you’ve listed them out, reorder them according to smallest to largest balance.
2. Put Extra Toward The Smallest Balance
Next, put any extra money toward that smallest balance. You’ll keep paying your minimum amounts to avoid fees and damage to your credit report and you’ll continue socking away extra cash to that smallest amount until it’s completely gone (cue streamers and victory music).
3. Focus On The Second Smallest Balance
Once you’re done celebrating, it’s time to get back to work. You’ll still be paying your minimum payments but with one of your debts eliminated, you should have even more money that can now go toward your second smallest balance.
4. Continue To Pay Off All Your Balances
You’ll repeat the above steps until your debt is gone. Seeing your debts get eliminated one by one can be very motivational. The debt snowball method is ideal for individuals who need to some extra encouragement as they pay off their debt.
Other Ways To Eliminate Debt
Two other ways to eliminate credit card debt are the debt avalanche method and balance transfers. Also leverage debt free living tips spending to further mitigate debts.
Debt Avalanche Method
Using the debt avalanche method, you get rid of the highest interest rates earlier in the process. While still paying minimum amounts, you put extra capital toward the highest interest rate balance. From there, you focus on the next highest interest rate balance once the first is paid off. This way, you gather more overall savings by eliminating the highest interest rates first.
With a balance transfer, you’ll move your existing credit card debts to a new card with a lower or 0% promotional APR period. By consolidating your debt to this new card, you’ll be able to save on interest while paying off your debts. However, you should be sure that:
- You’re able to pay off your debt within that promotional period. Otherwise, you could be stuck paying a very high interest rate on your remaining balance once the intro APR end.
- If there’s a balance transfer fee, the money you’re saving should outweigh the fee’s cost.
The snowball method can help you kiss your debt goodbye and get back on your feet. However, the debt avalanche method and balance transfers can also be helpful options. The important thing is that you fully commit to whichever strategy you pick, so you can say hello to a better financial future.
Stefanie began her career as a journalist, reporting on options, futures, and pension funds, and most recently worked as a writer and SEO content strategist at a digital marketing agency. In her free time, she enjoys teaching Pilates and spending time with her daughters and Siberian Husky.