There’s a reliable way to get out of debt, even if you live from pay cheque to pay cheque. It’s called debt snowballing – and it can help you to pay off your debts quickly.
Some debts are good (loans that have the potential to increase your wealth); while others (which involve borrowing money to pay for things that lose value) are bad. Either way, even though it’s sometimes necessary to borrow money to pay for the things you need, too much debt can derail your financial plans. When you’re in debt, it’s difficult to save, build your wealth and establish a solid credit record – and with interest attached, the debt hole you’re in may only get deeper and deeper.
You need a plan to get yourself out of debt, and to become financially independent. One of the most effective ways to do this is by creating debt snowball.
How debt snowballing works
You’ve seen pictures of a snowball rolling down a hill, right? It starts small, but as it rolls it gathers more snow, growing bigger and bigger as it gains momentum. By the time the snowball reaches the bottom, it’s much, much bigger than when it started.
The same basic idea applies when you use the snowballing method to paying off your debt. You start small by tackling your smallest debts first, and build momentum over time to stay motivated and to tackle your bigger debts.
Here’s how it works:
- List all your debts from the smallest amount to the largest amount
- Pay the minimum repayment on every debt, except for the smallest one
- Make your smallest debt your biggest priority and pay as much as you can on it to pay it off as quickly as you can
- Once you’ve paid off the smallest debt, add that amount you’ve freed up onto the next smallest
- Now pay as much as you can on this debt until it’s paid off
- Keep going, until each debt is paid in full
Why debt snowballing makes sense
It’s easy to see why this approach makes so much sense: as you pay off smaller debts, you free up more money to pay towards the bigger debts when you reach them. It’s methodical and systematic, and it forces you to focus on getting your budget out of the red and into the black.
Doing it this way means you will see results sooner than if you were to try to tackle all your debts at once. This is a good way to motivate yourself to keep going. If you start with the biggest debt, you won’t see results for a long time. The snowball strategy lets you make progress quickly, and rewards you every time you’ve paid off a debt, or account, until you’ve wiped out all your debt.
Simplify debt (by December). Live better.
Can this approach have you debt-free by December? It could… depending on the extent of your debt, and on your own discipline. The debt snowball approach requires laser-like focus, so you’ll have to ignore distractions along the way.
You know the type: Black Friday, Cyber Monday, the summer holidays… With all those spending temptations, it pays to have a strategy that keeps your momentum and motivation going. Snowballing through the summer can help you do that.
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