Many individuals believe that paying off high-interest rate credits cards first is best when it comes to paying down debt. However, for some people, this simply does not work. They don’t see the balances decreasing fast enough to suit them and they may give up and feel as if they have to live with this debt forever. There is no reason to. Another way to pay off debt is to list debts from smallest to largest and pay them off in this order. What is this method called and how does it help?
The Snowball Method
With the snowball method, individuals list their debt from smallest to largest. They then begin making the minimum payment on all debts other than the smallest. Any extra money that results from doing so is then applied to the smallest debt, allowing the debtor to pay it off in a shorter period of time. Once the smallest debt has been eliminated, the person then moves to the second smallest debt. Now he or she makes the minimum payment on all debts other than this one, which allows more money to be put toward the debt to eliminate it quickly. The process continues in this manner until all debt is paid off.
Why Does This Work?
Many people start paying off debt and have a great deal of motivation to do so. However, when the debt total does not decrease rapidly, they become discouraged and wonder if they are truly making any progress. They then give up and believe they will never get their head about water financially. The debt snowball method allows them to see progress in a short period of time and this encourages them to continue working toward the goal of financial freedom.
If paying off your debt is something you would like to do, try the snowball method. When progress is quickly seen, people become motivated to try even harder and begin looking for ways to increase the amount they put toward the debt each month. Try it today. You’ll be surprised to see how effective this method is. Furthermore, when you begin paying off debt, your credit score should rise. This may allow you to refinance the debt with higher interest rates to pay off all debt sooner. Wouldn’t that be nice?