Most people in the United States have some form of debt. About 80% of Americans have student loans, medical bills, car payments, credit cards, or a mortgage. The total household debt in 2020 is over 14.3 trillion dollars, which means many people could benefit from debt repayment. The Debt Snowball Method has several advantages or methods of paying off debt, and it could be helpful to you.
What Is the Debt Snowball Method?
Indeed, most people are not experts in personal finance such as Nicole Junkermann LinkedIn. Personal finance is something to know about in addition to all of the other things we must remember to live a successful life. So what does a snowball have to do with debt repayment, you might ask?
The correlation between debt repayment and snowballs may not be apparent at first, but thinking about how a snowball grows as it rolls downhill is helpful. With each rotation of the ball, more snow is added, and at the bottom of the hill, the snowball is much larger than when it began its journey. The small snowball at the top of the hill represents the minimum monthly payment of your debts. As the snowball gains momentum, so does the amount of money available to pay back debt until, at the bottom, all of your debt is paid off.
What Are the Steps to Get Started?
The very first step in paying off your debt with the Debt Snowball Method is to make sure to pay the minimum balance on all of your debt. Then, organize debts from the lowest amount to the largest. Use any leftover money to make extra payments on the smallest debt. Once the smallest debt is paid, start making additional payments on the next smallest debt and so on. The beauty of this method is that, depending on the amount of your lowest debt and available leftover funds, you could see the first debt paid off in a couple of months.
What Are the Advantages?
One of the biggest advantages of the Debt Snowball Method is motivation. By starting with the smallest debt and paying it off quickly, you get the satisfaction of having one less debt to pay. It may not seem significant now, but the peace of mind gained by achieving this first step can be a highly motivating factor.
With the first debt paid off, now you will have more money to start paying off the second smallest debt. This means not only using available leftover funds but also the minimum monthly payment that was going to the smallest debt. In short, you can make more progress on the second smallest debt with the extra money. Imagine how much more money can be directed to the largest debt once all the smaller ones are paid off.
Overall, the Debt Snowball Method is a sound way to pay off debt. It is essential to consider your personal situation in choosing any debt repayment method. While this method may work for many people, you may need to explore other methods that fit your circumstances better.