What’s a debt snowball?
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If you’re wondering ‘what’s a debt snowball?’ or ‘how do I make a debt snowball?’, you’ve come to the right place!
As a massive advocate of the debt snowball debt repayment method, I’m going to explain it. It’s pretty straight forward and really won’t take you long to get the hang of. Dave Ramsey uses the debt snowball method as his go to to debt repayment and it’s grown in popularity in recent years because of this.
What took me longer was getting my head around why it works so well.
Especially when you realize it’s not traditionally what we’re taught to do. It might even seem wrong to you. That’s okay.
So if you’ve ever got bored and felt like it took forever to pay off debt, this post is for you. If you’ve ever felt like paying off those huge debts you have is so scary it’s not worth even starting, then this is for you.
I’ve been there and I’m not quite out of the woods yet. It’s terrifying. It fills your thoughts and it’s so much easier to not even think about it. But you’re here and you’re obviously looking for a way to pay off debt. This is a good way. I think it’s the best. Hear me out, then ask me anything about it. I’ve got pretty good!
What is a debt snowball?
At it’s simplest, a debt snowball is a quick and motivating debt repayment strategy. Wikipedia tells us that experts in all things finance are split about its effectiveness. Yet despite seemingly going against logic, the debt snowball method seems to work wonders for people and has gained massive popularity in recent years. But what IS it? A snowball rolls from top to bottom right? It starts off small, gathers momentum and gets bigger as it rolls down the hill. That’s how you organize your debts. You start off small and get bigger.
So. Take your smallest debt and then put them in order until you get to the largest debt. We had nine. Yes, nine debts that we needed to pay off. The smallest was for a few hundred pounds and the largest was, well, a lot more than that.
Bite the bullet and just do this. I know it’s not the best feeling, but the feeling of getting started and knowing you’re making inroads is good. Believe me.
How do debt snowballs work?
You’ve got the list you just made. You know what you owe, from the smallest to the biggest debt. You’re going to keep making the minimum payments of all of them. If you’ve been trying to throw more money at some, stop. Don’t pay a penny more than you absolutely need to to stay out of arrears with any leander, EXCEPT on the smallest debt. You’re going to give everything you’ve got to the smallest debt.
Sell anything that’s not nailed down. Scale back. Do everything you can to make money. My post here will give you ideas on how to get some extra money coming in.
The idea behind this is that you get the first debt paid off super fast. In a few weeks time if you can, baring in mind it’s the smallest.
Once this debt is paid off, you’re free of the minimum repayment it had, and so you add this to the minimum payment of the second debt. The reason behind paying the smallest first is that you very quickly have a ‘spare’ minimum payment to throw at the second debt.
And after that, your snowball gathers momentum.
Every time you finish paying your ‘current’ smallest debt, you take all the minimum payments you no longer have (because you’ve paid off the debts they were attached to) and add them to the payments of the debt your working on.
I think you’re going to be really surprised how fast your debts get paid off. I know I was.
All the while you’re doing this, don’t forget to be adding to your monthly income.
We have ideas you can use to boost your cash working from home, and put anything you make towards the debt you’re working on. Make sure you’ve gone though the basics of your budget to see where you can save money. Every penny counts.
It’s then a case of repeat repeat repeat until you’re all paid up. It’s motivating, quick and easy to stick to.
Why does the debt snowball method work so well?
The snowball debt repayment strategies secret is behavior modification. Not very many of us got into debt, serious or otherwise, because we couldn’t add up.
Most of us overspent, knowing we didn’t have the cash. We got a car on HP because we didn’t have the cash in the bank.
We didn’t agree to pay interest on a credit card because we wanted to. It was because we didn’t have the cash in the bank. I’ve talked about the benefits of using cash and the reward you get of knowing you’re in control of your money. It goes hand in hand with the debt snowball method.
It gives you more spare cash to pay off your debts each month.
This is not the only method of debt repayment.
According to research from Harvard Business Review, researchers concluded after tests took place where participants simulated paying back debt, that it wasn’t the over all amount they paid back but the percentage of the balance they paid back that motivated them to continue.
“Focusing on paying down the account with the smallest balance tends to have the most powerful effect on people’s sense of progress – and therefore their motivation to continue paying down their debts,”Remi Trudel, one of the Harvard Business Review researchers.
What about the interest rates?
From a maths point of view, it makes more sense to pay the higher interest rate debts first. It really does. The method of debt repayment where you pay the higher interest rate loans and cards first is called the Avalanche method and yes, there are some people that like it.
There is though, a simple reason why the majority of people that try the avalanche method fail. They simply lose motivation to carry on.
Is it really worth worrying about the interest rates if you’ve stopped trying to get your debts paid off?
I’ll be honest with you here. Neither my husband or I worried about the interest rates when I took most of the debt out. We needed a loan for one of the many things that I thought were necessary, I didn’t look at the interest rate. I did afterwards when I woke up to this mess we found ourselves in. I then changed what I could to 0% cards to get rid of some of the interest. But some I couldn’t change, and that’s okay.
The debt snowball method gives you quick and VERY motivating results. It spurs you on and cheering as you pay down your debts. It’ll take you ages to pay off a £10k loan, and ages to be able to take the repayment and add it to another debt.
It’ll take you no time at all to pay off a £250 credit card (use savings, overtime at work, sell something!) and then start overpaying the next debt, and seeing that balance go down. If you’re anything like I am, you’ll enjoy seeing the numbers going down. I’m very motivated by results.
I love seeing a debt gone, or the balance going down, until eventually it’s £0 (yes, finance nerd, I know).
By the time you get to the bigger debts, you’ve got a fair amount of ‘extra’ cash to throw at them and get rid of them fast.
My advice as a non financial expert but someone who’s living the method? Don’t worry about the interest rates if you’re dedicated to getting your debts paid off in record time. Focus on making cash to speed up the snowball.
I really like a debt snowball!
It comes down to personal preference I guess, but I really like this method of debt repayment. Lets face it. It’s never going to be fun, and we’d all rather not have any debt and not have gotten it in the first place. But here we are. Time to get out of it. And the snowball method is a really great way to do so.
I’d love to know your thoughts or if you’ve done this, please get in touch!