The debt snowball debt repayment method is a strategy for paying off debts that focuses on psychological motivation and momentum. It was popularized by personal finance expert Dave Ramsey. Here’s how it works:
- List your debts: Start by listing all your debts, including credit cards, loans, and any other outstanding balances. Arrange them in order from the smallest balance to the largest.
- Minimum payments: Make the minimum required payment on each debt except for the one with the smallest balance.
- Extra payments: Allocate any additional money you can toward the debt with the smallest balance. This could be from your budget cuts, increased income, or savings from other areas.
- Snowball effect: Once you pay off the smallest debt completely, take the money you were putting towards it (including the minimum payment) and apply it to the next debt on the list. This “snowball effect” creates momentum as you pay off each debt.
- Repeat and accelerate: Repeat the process by paying off the next debt with the increased payment amount. As you eliminate each debt, the amount you can put toward the next one grows larger, allowing you to accelerate the debt repayment process.
The debt snowball method emphasizes the psychological benefits of small victories and quick wins. By focusing on paying off the smallest balance first, you gain a sense of accomplishment and motivation to continue tackling your debts. As you progress, the increasing payments toward larger debts help you make significant strides in reducing your overall debt burden.
The time it takes to see results with the debt snowball method varies depending on factors such as the total amount of debt, your income, and the extra funds you can allocate toward debt repayment. It’s important to note that this method doesn’t prioritize paying off debts based on interest rates. From a purely financial standpoint, the debt avalanche method, which focuses on paying off debts with the highest interest rates first, may be more cost-effective in the long run.
However, the debt snowball method is designed to provide psychological motivation and help you stay committed to your debt repayment journey. While the exact timeline will depend on your individual circumstances, the debt snowball method can typically help you see results within a few months to a couple of years, depending on the amount of debt and your ability to make extra payments.
