The Snowball Method for Paying Down Your Debts
Debt can pile up
These days we all know that debt grows and grows – and fast. And it can grow to be overwhelming without even giving you time to catch your breath. That’s the bad news. The good news, however, is that we have some ideas and strategies for you, so you can start cutting those debts down to size – in fact to get them cleared and paid off and keeping your sanity into the bargain.
We call it the snowball method and in reality it’s a pretty simple way to paying down debts, even if you owe a lot of money.
So, what would it be like for you if you could live your life without a single debt? Can you picture that in your mind’s eye? If every cent in your pocket was yours and yours alone, with no call on it other that what you decided to do with it. It would be your money again. Let’s face it, you’ve been feeding big finance for a long time – we all have. Their pocketbooks aren’t feeling the strain, are they? Why shouldn’t you be able to relish the prospect of vacations paid in cash, or getting your next auto, with 100% down and nothing left to pay – in cash, in other words!
Picture the life you deserve in your mind and feel the feelings of relief and joy. Then make a plan to move toward this life and put your plan into action.
Follow these tips to use the snowball effect for paying off your debts:
1. Pay off your smallest debts first. When you pay the smallest debt off first, you start a small amount of momentum that’ll build quickly. Write down all of your debts from smallest to largest, and then create a plan to pay off the smallest one first.
* Small wins add up. Your personal finance strategy will be more successful if you feel motivated, which is why small wins are so important in the beginning. When you start paying off your smaller debts, you’ll find yourself feeling motivated to maintain your debt-reducing strategy.
2. Pay off the next smallest debt. Once the smallest debt in your list is completely paid, add whatever you were paying on that debt to the payment for the next debt in the list, essentially doubling your monthly payment on that debt. Once you tackle this debt, you have another win under your belt.
3. Eliminate all debt. Use the debt snowball to eliminate the rest of your debts from smallest to largest. As each debt is paid, add those payments to the next debt. Don’t worry about term lengths or rates unless two different debts have similar payoff amounts, at which point you should pay off the higher interest rate debt first.
4. Keep building momentum. Let the momentum continue, repeating the debt repayment process for each debt as you work your way closer and closer to financial freedom. Every payment moves you closer to your goal of being financially free.
* As you’re attacking the smaller debts first, maintain the minimum monthly payments for everything else. Do whatever is necessary to focus your attention on maintaining your plan and keeping this momentum going.
* Keep stepping up from bill to bill, paying off the next smallest, then the next smallest and so on. After your credit card debt is taken care of, you can focus on other debts as well – to where even your mortgage is paid off.
The snowball effect is an effective debt repayment strategy. Utilizing this method of debt repayment will help you keep the momentum as you repay your debts so that you can get the job done and enjoy a life free from the constraints of debt.
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