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“I paid off $81,000 worth of debt in 15.5 months.”
“I am officially debt-free, $85,850 in 28 months.”
“$70,000 in 30 months, I did that.”
You probably have come across these stories at least once a week on the internet and you may be wondering how I can make that happen for me as well?
With several methods available on how to settle your debt, the snowball method has become a popular debt management tactic.
WHAT IS THE SNOWBALL METHOD
For the snowball method you pay your smallest debts in full first, then roll the amount used to pay your first debts into paying off your bigger ones. It is very similar to rolling a snowball down a hill, the first roll of snow helps you build up a snowball.
The satisfaction that comes with tackling debt by debt keeps you engaged and in a matter of time, you are debt-free.
USING THE SNOWBALL METHOD TO PAY OFF DEBT
Planning is vital in every aspect and when minimizing debt is at the peak of it all. So here are a couple of steps to put the snowball method to work.
To offer you perspective on how it works, here is an example of the debt snowball of Maggie who owes $42,300 in debt and intends to settle.
She decides to pay off the minimum payments of her debt. This will be $25 for a medical bill, $30 for credit card 1, $50 for credit card 2, $75 for credit card 3, $250 for a Car Loan, and $300 for a student loan. Once all is settled, she then channels her efforts to pay off the smallest debt as much as possible. To do this, she can pick up a side hustle to bring in more income and that is all used to compensate for the smallest debt.
Now, the reason this method is called the snowball is in what you do after settling your first debt. Maggie who has been accustomed to paying a minimum payment on all her debts then continues to do so toping up the minimum payment of her last debt which she cleared on all her next smallest debts. This will then look like $55 for credit card 1, $50 for credit card 2, $75 for credit card 3, $250 for a car loan, and $300 for a student loan.
She then continues to do so for her next debt payment and finally, she is debt-free.
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Do you see the snowball in effect?
If you are considering this method, picking up a side-hustle to earn passive income can really help with rolling out the snowball. Check out a couple of side-hustles you can dive into here
HOW ABOUT INTEREST
Taking into consideration that this method focuses on the smallest to greatest debt, the aspect of interest rates is not accounted for. However, one detail is certain your debt will be paid off over time regardless of the interest rates attached to it.
DOES THE SNOWBALL METHOD WORK
Take it from Tamika Richie who used the snowball method to minimize her debt of $107,000 in 2 years except for her mortgage and started as an entrepreneur while doing so that it 100% works.
She has been debt-free for over 7 years and during that time she quit her job to focus on her E-commerce business which has continued to boom over time.
She currently has 4 businesses in total and continues to pay off her mortgage. Tamika is truly on the path to financial freedom and she shared her story with us in Episode 98 of The Money Exchange.
For a quick dose of inspiration, listen to her story here:
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