Having debts can be very stressful, especially if you don’t know how you will pay them off. Fortunately, there are many ways to help people get out of debt. One way is the debt snowball method.
Unlike other methods, this will put all of your available money to help you pay off the smallest debt first. Here’s how it works.
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How To Implement The Debt Snowball Method?
If you have more than one debt, they’ll be arranged to the smallest amount first and so on until you get to your biggest debt.
First, make a debt snowball spreadsheet. You’ll need it to make a list of all your debts–from smallest to largest. The spreadsheet will enable you to enter the total amount of debt for each credit account. In addition, you’ll be able to track your balances and payments every month.
The Targets
After making a list of your debts according to their balances, starting with the smallest one, you now need to design your budget for reaching them. You need to create an overall budget for paying off debt snowball. Allocate a specific amount of money to your debt each month. The smallest balance in your list should have the highest priority.
How Does It Work?
Take a look at this entry as an example:
Debt 1 Balance: $100, with a $10 minimum payment
- Payment Amount: $50 ($10 is the minimum payment + $40 extra payment). To pay off this debt faster, you can allocate more than what’s required for the debt.
Debt 2 Balance: $200, with a $30 minimum payment
- Payment Amount: $30
Debt 3 Balance: $300, with a $40 minimum payment
- Payment Amount: $40
After two months of paying $50 each month on the smallest debt, it’ll be eliminated. After that, you can apply the $50 to your next smallest debt and so on until all debts are gone.
Why Use The Debt Snowball Method?
The snowball method will help you get out of debt by focusing on the smallest debt first. Remember the snowball? It’ll eventually become big if you keep adding that little bit of snow to the ball. This is how your debts will be paid off–with a lot of small payments added up to make a large payment that’s enough to pay off your smallest debt in full.
This method will be beneficial, especially if you have limited money to pay off your debts. So, rather than spending your whole paycheck on paying off the one or two major debts you have, allocate a part of it to the smallest debt first. This will motivate you to continue paying it off and have the same amount of money for your next payment.
Keep Your Emergency Fund Separate
Why should you keep your emergency fund separate from your debt snowball account? Remember, an emergency fund is for unexpected events. This includes repairs, sudden travel expenses, and other unforeseen circumstances.
You still want to make sure that you don’t touch your emergency funds because it’ll become tough to be disciplined in paying off the rest of your loans when that happens.
How To Make Sure You Stay On Track?
To make sure that you stay on track, don’t use your credit cards or incur additional debts until you can pay off what you have on your snowball spreadsheet. If you have been using your credit card frequently, it’s best that you cut them out or place them at a safe location where you cannot access them.
Focus on your snowball spreadsheet and how you can cut down on your expenses to pay off those debts. It might be hard at first, but you’ll be more driven to pay off your debts once you have plans and a goal in mind.
How To Get The Most Out Of Your Snowball Effect
Always focus on the smallest debt first. Make sure that you get organized to make payments on time. Always have a goal in mind every time you make that small payment. Write down the date when it’s due and how much of the amount you would like to add to your snowball.
The debt snowball method might be easy to do, but it requires commitment from you. If you stick to it, then you can be debt-free in no time.
Final Words
The debt snowball method is a popular way to pay off debts, and it has been known to get people out of debt in no time. It’s an easy plan that you can stick with because the only thing you need is three things: your list of debts, a budget for paying off those balances each month, and monthly payments on the specific amount due for each account.
Remember that once a tiny balance gets paid off, its payment will be applied to another smaller account until they’re all gone!
