The debt snowball method is a debt-reduction strategy where you pay off debt in order of smallest balance to largest balance, gaining momentum as you knock out each balance. When the smallest debt is paid in full, you roll the minimum payment you were making on that debt into the next-smallest debt payment.
Debt snowball is a strategy for paying down debts that involves paying off your smallest debts first, then moving on to the next smallest. The debt snowball method can be ideal for people who want to stay motivated seeing their debt fully paid down.
Since paying debt off can often take years, that motivational component is vital. The debt snowball method directs you to pay your debts off by starting with the smallest one and working upward. Each time you pay a debt off, you reallocate the money you spent on that bill to pay off the next-smallest debt.
Article highlights. You can successfully pay off debt with either the snowball or avalanche method. Paying off smaller balances first (debt snowball method) gives you motivation to keep going. Paying off higher-interest debt first (debt avalanche method) can save you more money.
The debt snowball is a debt payoff method where you pay your debts from smallest to largest, regardless of interest rate. Knock out the smallest debt first. Then, take what you were paying on that debt and add it to the payment of your next smallest debt.
The best way to pay off $3,000 in debt fast is to use a 0% APR balance transfer credit card because it will enable you to put your full monthly payment toward your current balance instead of new interest charges. As long as you avoid adding new debt, you can repay what you owe in a matter of months.
In order to pay off $6,000 in credit card debt within 36 months, you need to pay $217 per month, assuming an APR of 18%. While you would incur $1,823 in interest charges during that time, you could avoid much of this extra cost and pay off your debt faster by using a 0% APR balance transfer credit card.
Debt Snowball Pros and Cons
With this strategy, you don't need to compare interest rates or APRs, only the amounts owed. The largest drawback of the debt snowball is that it does not reduce the amount you pay in overall interest as much as the debt avalanche method.
With the debt avalanche method, you order your debts by interest rate, with the highest interest rate first. You pay minimum payments on everything while attacking the debt with the highest interest rate. Once that debt is paid off, you move to the one with the next-highest interest rate . . .
If you were to make only the minimum amount due on all of your debt, it would take about five years to become debt free. In contrast, using the debt snowball method by paying an extra $100 a month on your smallest balance, you'd be out of debt in about three years and save nearly $1,800 in interest.
It will take 47 months to pay off $20,000 with payments of $600 per month, assuming the average credit card APR of around 18%. The time it takes to repay a balance depends on how often you make payments, how big your payments are and what the interest rate charged by the lender is.
While there are no government debt relief grants, there is free money to pay off debt in that it will help you pay bills, giving you more income to pay on credit card and other debt. The biggest grant the government offers may be housing vouchers for those who qualify.
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Debt forgiveness is usually available for unsecured debts like credit cards, personal loans, or student loans. Secured debts like a mortgage or a car loan are not usually eligible for debt forgiveness. If you default on a secured debt, the lender will likely pursue foreclosure or repossession.
Myth 1: Being debt-free means being rich.
A common misconception is equating a lack of debt with wealth. Having debt simply means that you owe money to creditors. Being debt-free often indicates sound financial management, not necessarily an overflowing bank account.
If you're motivated by a quick win, then the snowball method is a better choice. But if you crunch the numbers, the avalanche method would save you $153 in interest, and you could pay everything off in 40 months (according to Magnify Money's snowball vs. avalanche calculator), one month faster than the snowball method.
Some debt reduction options work the best for people with no money and credit that ranges from fair to bad. Those options include: Debt Management Program – Nonprofit credit counseling agencies can help you put together a budget and discuss options, including a debt management plan.