If you've been struggling to pay off debt, you've no doubt been told that you should do a debt snowball
. So what's a debt snowball and exactly how is it going to help you pay off your credit cards?
A debt snowball is simply a method of paying off your debt
that works off of your emotions. Rather than paying down the debt with the highest interest rate first (which would be mathematically correct in order to pay the least amount of interest), you pay the minimum on everything except for whatever you owe the least on. Your smallest bill, you pay as much towards as possible until it's paid off; you then take everything you were putting towards that bill and pay it towards the next smallest, and so on.
The idea is that by seeing your debts paid off (rather than simply reduces) you gain a psychological boost, making it easier to keep saving and living frugally until all of your debt is paid off. (There is one practical benefit as well - if you absolutely have to use a credit card, using one with no balance and paying it off at the end of the month means you won't pay any interest). Because the money you were paying on the smallest debt gets added to your minimum payments on a larger debt every time you finish paying something off, you also get the pleasure of seeing the loan you're working on decrease by a larger amount each time.
Is it a magical cure that will halve the money you owe? Sadly, no. But the psychological boost is just what many people need to finally begin making headway against their debt and getting back on the road to financial freedom
said on Oct 30 2010 10:12:29
Sometimes the psychological boost makes all the difference. Logically, we should pay off the highest interest debt first but since we are only human, we must do what our mind allows us to. Create momentum by clearing one debt and then another, and pretty soon (like a snowball) all the debt will be gone. But if we don't tackle the little debts first, we'll never get to the bigger ones. We'll end up sabotaging our own efforts with self doubts if we try to do otherwise.
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