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If you’re struggling to get out of debt, you may want to try the snowball method. With this strategy, you pay off your smallest debts first. The feeling of accomplishment this gives you can encourage you to continue until all your debts are paid.
Here’s what we’re going to cover:
- What is the snowball method?
- How does the snowball method work?
- Should I use the snowball method?
- Other strategies for paying off debt
- Oportun: Affordable lending options designed with your in mind
- If you’re finding it hard to get out of debt, the snowball method may help motivate you. By paying off your smallest debts first, you get a feeling of success that can encourage you to continue until you’re completely free of debt.
- To use the snowball method, list all your debts and sort them from smallest to largest. Then pay them down in order, beginning with the smallest debt.
- Choosing a debt repayment method is a matter of personal preference. If one strategy isn’t working for you, you can always try another. The most important thing is to keep going until you’re out of debt.
What is the snowball method?
With the snowball method of debt repayment, you pay off your debts in order of the amount you owe, from the smallest debt to the largest one.
This strategy allows you to pay off some small debts quickly. The feeling of accomplishment this gives you can encourage you to continue until all your debts are paid. Think of it like packing a snowball: You start with a handful of snow and keep adding to it, so the snowball of your success gets bigger and bigger.
How does the snowball method work?
To pay off your debts using the snowball method, follow these simple steps.
1. List all your debts
Start by making a list of all your current debts, such as loans, unpaid bills, and credit card balances. Include the total amount you owe, who you owe it to, the interest rate, and the minimum monthly payment for each debt.
2. Arrange your debts by amount owed
Next, arrange your debts according to the amount you owe, from the smallest to the largest.
3. Continue making minimum monthly payments
It’s important to keep making at least the minimum monthly payment on each debt. If you miss payments, it can hurt your credit score. You may want to set up automatic payments to make sure your minimum payments are paid on time each month.
What is a credit score?Your credit score is a number between 300 and 850 that gives businesses an idea of how likely you are to make payments on time. The higher your credit score, the more financial options you’ll have.
4. Pay down the smallest debt first
After you’ve made all your minimum payments, use any extra money in your budget to pay down the smallest debt. The more money you put toward this debt each month, the sooner you can pay it off.
5. Repeat the process until you’re free of debt
When you’ve paid off the smallest debt, take a moment to congratulate yourself on your success. Then move on to the second debt on your list. Keep repeating this process until all your debts are paid.
Should I use the snowball method?
Many financial experts recommend the snowball method because it can help you build momentum. Once you’ve experienced success in paying off small debts, you may feel more confident about your ability to get out of debt. This can help you continue until you’re completely free of debt.
This strategy can also reduce your stress by adjusting how you think about debt. Rather than feeling overwhelmed by the amount you owe, you focus on one small debt at a time.
However, the snowball method may cost you more in interest than other debt repayment methods.
What are interest and interest rate?Interest is the amount of money you must pay your lender to borrow money. This is in addition to paying back the original loan amount or credit card balance.
How much interest you owe is determined by the interest rate, which is a percentage of the amount you borrow.
If you try the snowball method and find that it’s not working well for you, you can always switch to a different strategy. The best debt repayment method is the one that you feel comfortable with.
Other strategies for paying off debt
Here are some other options you may want to consider.
The avalanche method
The avalanche method is another approach to getting out of debt. With this method, you pay off your debts according to their interest rates, from highest to lowest. This allows you to save money on interest while you’re getting out of debt. It may also make the process faster.
Debt consolidation is the process of transferring all your debts to a single loan or credit card. The advantage of this method is that you have to make only one debt payment each month. You may also be able to get a lower interest rate, which could save you money on interest.
Streamlining your payments this way can make it easier to keep track of what you owe and plan for it in your budget. It can also reduce your stress by helping you feel more in control of your finances.
Oportun: Affordable lending options designed with you in mind
Now that you understand what the snowball method of debt repayment is, you can learn about how Oportun may be able to help you if you’re looking for affordable credit options. Visit our homepage to learn about:
- Personal loans
- Secured personal loans
- Credit cards
- And more!
Investopedia. Debt snowball
Principal. Three ways to pay off your debt
Association for Consumer Research. Debt repayment strategy and consumer motivation to get out of debt