Reducing Debt with a Snowball (Guest Post)

Tackling debt can be as easy as rolling a snowball. Kids learn early that when you roll a snowball along an area covered with snow that the snowball with grow. Paying down debt can work with the same concept.

The snowball method of reducing debt takes the payments from one debt and rolls them into the next debt as each debt gets paid off. It means that the payment amount will grow larger but without requiring adjustments to your budget along the way.
The first step for getting finances under control must always be developing a budget. Creating a balanced budget (where more money is coming in than there is money going out) will help you reduce your debt and also prepare for the future. Once the budget is established you can begin aggressively taking on debt until you are free from its hold.

Evaluating debt must be part of the budget process. Seeing just how much money is owed and how little goes toward the principle with each payment can be all the incentive necessary to not only pay down existing debt but to avoid debt altogether in the future. Understanding gives you the foundation for building a sound financial future that starts with the demolition of debt. There will have to be money set aside in the budget to deal with the debt. Making your snowball debt reduction strategy part of your budget planning might make it easier to get the debt under control in the quickest amount of time.

Begin by taking the smallest amount that is owed and increase the amount paid on that debt each month. The department store credit card may have a higher interest rate, but paying off that smallest amount will give you the satisfaction of a job well done and will encourage you to continue the journey to debt freedom.

Once the smallest amount gets paid in full then move the focus to the next smallest debt. Continue to use the same amount that was paid on the last card to pay on this new debt. That is the snow ball effect. The payment amount gets larger because the payment from the last debt gets rolled over to pay off the next debt. Your budget is not affected because all of the payments are already laid out in the budget.

There are other ways to remove debt as an issue in your life but planning and persistence are key elements to balancing finances. The snowball method of reducing debt and working towards debt freedom works best for those that need to see results quickly. Paying off the smallest debt first will give you a quicker satisfaction and will mean that you have fewer payments to make each time you tick one debt off.

Written by Peter “Van The VA Man” Brady who is a veteran’s administration home loan specialist and personal finance expert who helps our country’s veterans get the best VA loans all across the country.

Author: Lulu

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9 Comments

  1. Start with clearing the smallest debt will definitely let you feel a sense of achievement and thus increase your motivation.

    Thks for sharing this information.

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  2. Yes! Persistence is so important because if you give up, it’s over. I’d definitely feel better if I cleared small debt and then move onto bigger ones because then at least I’d be making progress.

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  3. Nice post. I just started to use the snowball method this week. My first 2 debt are almost the same total, so I decided to tackle the higher interest first. I will be a while before I see it completed, but I know it will feel good. My goal is to be done with all debt in ten years.

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  4. Great post. You make a great point regarding going for the smaller debt whether it is the only with the highest interest. The way our minds work this could be a great was to get yourself debt free. The other ones you can ignore “well not ignore but put aside” Is college and medical debts as they don’t affect your credit as bad as others.

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  5. I am also paying off my smaller debt first. While it may seem to make sense to tackle the highest interest debt first, if it is much larger it can be frustrating & tough to commit to.

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  6. Paying only the minimum will drag out your debt for years (or in some cases, never pay it off at all). I like your idea about paying the highest interest first – that makes a lot of sense! Also, beyond credit cards, don’t forget about car payments or mortgages. They are still a debt to your name, and you may want to consider paying an extra mortgage/car payment instead of paying off credit card debt, if you already have low rates.

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  7. Oh..boy I don’t like the snow balls..It make sense to pay the smaller amount..

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  8. Thanks for sharing this information! It’s really good. It totally makes sense to start with the least and moving forward. So by the time you end up on the last debt you would be able to focus on just paying that one off which is probably much easier when you have no other debts to worry about and the payment amount will be heaps bigger. Good thinking!

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  9. While it may seem to make sense to tackle the highest interest debt first, if it is much larger it can be frustrating & tough to commit to.

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