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What is the debt snowball method?


For those of us with piles of unpaid debt, thinking about the best method of dealing with it can be an incredibly stressful activity. Even for those of us who feel their debt is of manageable size; it can be difficult to ascertain the most cost effective and efficient way of paying it off.

Enter, the Debt Snowball Method.

What is the debt snowball method?

The debt snowball method is a debt clearing method championed by American businessman Dave Ramsey, and it relies on the simple idea that you need to start small, and build up! Much like a snowball; you start packing the snow in small amounts and as it rolls it collects more and more, until it’s huge!

How does it work?

This simple theory states that the best way to tackle your debt is to start by paying off your smallest debts first, building up slowly to your largest: regardless of the interest rates.

Step one

You make a list of your debt from the smallest to the largest.

Step two

Each month you make all minimum payments on all your debts. However, with the smallest debt you also make additional payments in order to clear this debt as fast as possible.

Step three

Once the smallest debt is cleared then you move on to the second smallest, putting all the money you were previously paying towards your first debt into payments for this one. You repeat this until all your debts are clear.

Does it work?

The theory behind debt snowballing is that by the time you reach your largest and most intimidating debt payment you will be paying it off in such large chunks that it will be much more easily, and efficiently, dismantled. Much more so than if you had continued to make small piecemeal payments.

This sounds simple enough, but does it really work?

Academic research says yes! The reason the debt snowball method appears to be so effective is not to do so much with the mechanics of the process, but rather the psychological effect it has on the debt payers.

Research has shown that by paying off the small debt first, which is easier to clear, people feel a sense of accomplishment and are more likely to continue the repayment process. Positive reinforcement is key to the success of this method, as it's easier to stay motivated if you see continual progress.

After all, the journey of a thousand miles begins with one step!

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