Personal finance expert Dave Ramsey is well known for introducing the Snowball method.
Helping to eliminate credit card debt, the Snowball method has helped many people to become debt free. However, it isn't suitable for everyone. In order to decide whether you could eliminate your credit card debt using this method, you first need to understand what it involves.
What is the Snowball Method?
By using the Snowball method, you will be paying off your lowest debt first. Out of your credit cards, which one has the lowest balance? Aim to pay that off first and then use the payment that you would have made for that debt, to pay off the others. Each time you pay off a little of your debt, it leaves you with more money to spend on the others.
Ideally, you will need to be able to afford more than the minimum repayment for at least one of your debts. When you focus on one debt at a time, it helps you to pay off your balance quickly. Just think, you are currently splitting up your payments and paying the minimum amount on each debt. If you increase the repayments on just one of them, you will pay it off quickly.
How to Put the Snowball Method into Practice
If you would like to put the Snowball method into practice, say you have $5,000 worth of debt on several credit cards. On one card you owe $2000, on another you owe $1250, then on another you owe $1500, and finally n another card you owe $250. You pay a minimum repayment for each one.
On the $250 debt, you may be paying $25 per month for example. If you manage to pay just the minimum for the higher debts, you could pay a little bit more towards the $250 one. The more that you can pay off, the more you will save in the long run.
Then once you have paid the $250 debt off, you can then use the $25 minimum repayment to pay off the next lowest debt. You continue this until all of your debts have been paid off.
When the Snowball Method Might Not Pay Off
There are some instances where the Snowball method might not be favourable to you. For example, it could work out more profitable for you to pay off the highest credit card debt first. You could save a lot of money in interest if you do it the other way around.
That is the only time when this method might not be suitable for you. However, most people do find it a lot easier to pay off their smaller debts first. As each debt is paid off, it gives you motivation to pay off the rest. That is why the Snowball method is currently so popular.
Eliminating credit card debt can be frustrating. However, by following the above method, you could get out of debt quicker than you think.Back to top