The Snowball Method is a debt reduction strategy that is used by a lot of people today to manage their overwhelming number of debts. The way it works is, you pay off your debts in order of smallest to largest. Have you ever been taught as a kid that the fastest way to build a snowman is by rolling a small snow ball through the snow? As the ball rolls, it gets bigger and bigger as it picks up momentum until its turned into a boulder. Well, this technique is similar to that, except it's the debt we're paying off that's quicker.
3 Steps to Building Your Debt Free Snowman
These are the steps in achieving the Snowball Method:
Step 1. List Your Debts from Smallest to Largest
List all the debts and loans that you owe on a piece of paper in the order of smallest to largest.
Step 2. Make Minimum Payments on All Your Debts Except the Smallest
Make the payments to all your debts at a minimum amount except your smallest debt. Instead, pay as much as you can on your smallest debt. When you focus on one debt at a time, it helps you pay off your balance quickly. Once one of your debts have been paid off, the amount that was used to pay off that debt can be used to pay off your second smallest debt in addition to what you are already paying.
Step 3. Repeat Until All Debts Have Been Paid
Repeat this process until all your debts have been paid off. Every time a debt has been paid, use that amount to pay off your next debt.
For more information on budgeting and how it can help get your finances back on track, check out our budgeting page.