Credit Cards and Debt

How to Get Out of Debt Using a Debt Snowball

Debt snowball?  Sounds like the worst snow day ever, right?  Wipe any strange mental imagery that popped up when you read those words and put this in their place instead – the “debt snowball” is an approach to kicking off your debt in a way that has inspired thousands to get out of debt entirely – no debt consolidation or shady loan sharks involved!

The “debt snowball” is basically an approach to paying off your debt in a methodical way so that you see results fast, and are more motivated to stick to your guns and actually get the debt paid.  The problem with the traditional way of dealing with debt is that people get discouraged when visible results are not to be had, and they lose their resolve to get out of debt.  With the debt snowball, debtors cultivate motivation and get excited when their debts get knocked off one by one.

List Out All Your Debts – Smallest to Largest

Want to play?  Great!  First, get all your debts in a list.  This might not be particularly inspiring as a beginning, but it gets better, we promise.  Put them in a ranking order, putting the smallest balance or payoff first.  Don’t get bogged down with the interest rates or terms unless two of your debts have similar payoffs – if this happens, put the debt with the highest interest rate first.

IMPORTANT: your home loan is exempt from this.  Obviously, you need to keep on paying this no matter what.  Be sure that when you undertake the debt snowball, you can still take on your home loan.

Put all your other debts on minimum payment with the exception of the first, smallest debt on your list.  Then, attack that first debt with all the money you can devote to it.  You’ll be surprised how fast it’ll disappear off your list – and then you have visible proof of success, in the form of one fewer debt to face each month.  Feel good?  Great!  Move up to the next debt on your list.

Don’t Go After Your Highest Interest Rate Debt Yet

Traditionally, debtors try to tackle the biggest debt first, since there’s more headway to be made on it.  The problem with this is that these largest debts can take years to really knock off, while your smaller debts keep on nibbling at you and kill you with interest in the long run.  With the snowball debt approach, you’ll see those little debts disappear.  Over an extended period of time, this will end up costing you less money in interest when you can kill the principle of your smaller debts.

While the debt snowball is not a “quick fix” to your debt problems, it does offer an innovative new way to combat debt and keep your motivation level high without costing you a penny in consultation.  Give it a try.  If nothing else has worked, you might find success in the psychology of the debt snowball.  Sometimes, all it really does require is turning a situation on its head to give you the motivation – and the courage – to keep on going.  Good luck!