Reducing Debt with the Debt Snowball Method
Do you feel like you’re drowning in debt? Ready to lower the amount that you owe? The Debt Snowball Method is one of the most popular strategies to reduce debt. Here’s how it works.
How the Debt Snowball Method Works
- Gather all your debts and organize them from smallest to largest. Common debts you may have includes credit card debt, car loan, student loan, and/or medical bills.
- Continue making minimum payments on all debts on time. This will ensure that you aren’t charged any late or missing payment fees as well as prevent your credit score from getting dinged. Making all your required payments first will also help you determine how much money you have left over to put towards your debts.
- Pay off as much as you can towards your smallest debt. For example, if you owe $1,000 towards credit card debt, $10,000 towards your car loan, and $20,000 towards your student loan, you should be putting as much as possible towards the credit card debt first, even if the car or student loans have higher interest rates.
- Roll over payments from paid debts to the next. Let’s say you successfully pay off your credit card debt in full. Like a snowball rolling down a hill, any payments you would have normally made towards your credit card debt will roll over to the next debt in line. In this example, it would be rolling over towards your car loan. Once your car loan is paid off, payments you would have normally made for both your credit card debt and your car loan can now be applied to your student loan.
- Repeat the process. Eventually, assuming you aren’t taking on new debts, you can see your debt decrease as you use the Debt Snowball Method. As you work towards reducing your debt, remember to stay focused and positive about your progress.
[ READ MORE: Tips for Minimizing Credit Card Debt ]
Looking for more ways to manage your money? Learn about the popular and effective 50/30/20 budget rule to see how much you should be spending each month based on your income. Also, check out the U.S. Auto Sales blog for more helpful posts!