What is the Debt Snowball Method?
The Debt Snowball Method is a debt repayment strategy that focuses on paying off your smallest debts first, regardless of interest rates. This method is designed to create a psychological boost and motivation as you eliminate debts quickly.
How It Works
- List all of your debts from smallest to largest.
- Make minimum payments on all debts except the smallest one.
- Put any extra money towards the smallest debt until it is paid off.
- Once the smallest debt is cleared, move to the next smallest debt and repeat the process.
Benefits
- Provides quick wins that boost motivation.
- Simplifies the budgeting process by focusing on fewer debts at a time.
- Reduces the emotional burden of having multiple outstanding debts.
Considerations
While the Debt Snowball Method is effective for many, it may not be the most cost-effective approach if higher interest debts are left unpaid longer. Balance the emotional and financial aspects depending on your situation.