How to Use a Debt Snowball to Pay Your Debt Down

While deciding to pay down your debt is an important step towards becoming debt-free, to reach your goal successfully, you need to have a detailed strategy in place. One strategy that has proven results is to use the debt snowball approach.

What is a debt snowball?

“Have you ever built a snowman? What is the fastest, most effective way to build the snowballs that ultimately comprise the snowman? You start with a small amount of snow and then roll the small snowball. As you roll the ball, it builds momentum quickly and gets bigger and bigger as it grabs more snow along its way. This is much faster than picking up handfuls of snow and packing it on to the snowball. The same concept can be applied to a debt snowball,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.

The debt snowball starts with you picking your smallest debt first and paying it down. This creates momentum. Once that smaller balance card is paid down, you roll that payment into paying down your next largest card and so on until all of your debts are paid off.

Are you struggling with debt and are trying to determine what the best strategy is to pay your debt down? There are a number of different debt relief and debt repayment strategies available, but you should tailor your strategy to your individual financial situation. Our trained credit counselors can guide you. Call us at [PHONE_NUMBER] or get started with our free online debt analysis.

Is the debt snowball for me?

While being motivated to pay down your debt is indeed a requirement to make the debt snowball work for you, there are some other criteria. You need to be up-to-date on your cards. You also need to have emergency savings on hand.

“Without emergency savings on hand, your debt snowball could melt away completely and you could easily find yourself in debt trouble again. Without cash savings to fall back on, you might need to use credit in order to cover emergency expenses,” says Schwartz.

If you are behind in your payments, or if you don’t have emergency savings, take some time to get these accomplished before you build a debt snowball.

Why is a debt snowball debt repayment strategy successful?

One of the hardest parts of paying down your debt is sticking to your plan over the long term. Depending on how much debt you have and your financial circumstances, it could take you quite some time to pay your debt down. That means sacrificing in daily life and reaffirming your goal each day to stay on track.

It’s not easy.

One of the great benefits of the debt snowball strategy is that you gain motivation through the momentum of paying your smaller debt down first. You prove to yourself that your debt can be paid simply by following your plan. It doesn’t take as long to erase a smaller balance debt as it would a higher balance debt, so this gives you a psychological boost to carry on towards paying all of your debt down.

Furthermore, as your snowball gains momentum and your debt gets smaller, the payments that you have been making will go further towards erasing the debt.

The debt snowball budget

Ready to snowball that debt? Start by building a budget that covers all of your monthly expenses. Identify areas that you can cut back for the time being so that you have extra money to put down on debt.

Target areas like entertainment, dining out and new clothing. Reduce your spending on groceries by proactively planning your meals based on what’s on sale, using coupons and price matching and buying in bulk. Reduce your spending on transportation by carpooling or parking the car and using public transport, walking or biking wherever you can instead.

Once you’ve found some extra money that you can use every month, you’ll have the “snow” to add to your snowball.

Building the base of the snowball

Start by listing all of your debts in order (smallest to largest, excluding your mortgage). Make minimum payments on all of your cards and put the extra money that you’ve earmarked in your budget down on the smallest debt that you have.

As you begin to cross the debts off of your list, you will have more money to apply to your debts going forward, so your repayment will happen even more quickly.

The debt avalanche

Another approach to paying down debt is to use a “debt avalanche”. In this method, instead of picking your smallest balance credit card, you pick the debt with the highest interest rate and attack that first. The benefit of this approach is that you will save a lot of money on interest charges. The downfall, however, is that it can take significantly longer to cross that first debt off your list, which can be a psychosocial hurdle for some.

Which one is for me?

While both the debt snowball and the debt avalanche are effective ways to pay down your debt, you need to pick the method that is most likely to help you reach your goal of being debt-free.

To determine this, consider your personality and how you approach goal setting. Do you have incredible willpower and have only a few debts to conquer? Are you able to relate to the benefits of reducing the amount of interest that you are paying out? The debt avalanche is probably the way to go.

However, if you are aware that your debt repayment is going to take some time and that you are the type of person that needs the mental boost of hitting smaller milestones to keep going, the debt snowball is your best choice.

You don’t have to be completely committed to either strategy either. If you choose one and find that it isn’t working for you, you can always switch to the other a few months in.

Learn about how budgeting, savings, and commitment are the cornerstones of debt-free living. Call us at  [PHONE_NUMBER] or get started with our free online debt analysis.

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