The Snowball Strategy: The Fastest Way to Pay Off Past Debts
No one wants to be in debt, especially so far that you have to consider a debt management solution. However, stuff happens and things don’t always go as planned. A general lack of education in finance and credit can keep many people from working towards a positive resolution. For others, the sheer amount owed can seem too overwhelming. This is where a strategy championed by financial expert Dave Ramsey can be an effective method for reducing debt.
When you think of a snowman, you think of three large snowballs. However, not much thought goes into how those snowballs were created. You don’t just start off with a giant snowball. You take a small ball and keep rolling until more and more snow starts to stick to it. Eventually you get a large snowball.
This is the basic idea behind the snowball strategy. You start with your smallest debts first and pay them off. As you pay those off, you pay the next smallest debt, until you have only your largest debt left. You’ll still maintain minimum payments on all debts that require monthly payments, however, the rest of your debt payment budget money would be applied to your smallest debt until it is completely paid off.
While this strategy goes against many personal finance expert’s advice, it is a sound strategy for the average person. It works for a couple of reasons. First, since you are paying off the smaller amounts first, you’ll find that you are clearing off more debtors quicker. That means fewer harassing calls, less bills to deal with, and just enough motivation to keep you on your plan. It’s a huge boost to pay off a debt, and those frequent boosts at the beginning may be enough to make you actually stick through your debt-free strategy.
Second, since you will paying off smaller debts first, the amount you’ll be paying off over time will be increasing. Say you have $500 a month to pay off bills. Your first few months that money may go out to pay a number of smaller bills. Once you are done paying those off, you’ll be able to apply all of that money to one or two bills instead. This increases the rate at which you’re able to pay off your bills instead of spreading it out over a number of bills.
While there are a number of debt reduction strategies, the snowball strategy is an effective one that could provide you with real results.