Debt Snowball: Here’s all you need to know

It was simply a great day. You completed every task that was there on your to-do list. You shut your eyes, ready to get a good night’s sleep, only to see yourself awake a few hours later. An avalanche of thoughts hits your mind. You feel restless as the revolving debt doesn’t let you sleep.

Many of us have been there. The lucky ones manage to make themselves get out of this haunting experience and pay their debts fully.

Thankfully, we do have a solution to this. It’s called ‘The Debt Snowball’ method. If you are ready to adopt a course of action, you can change your financial future.

So, let’s check out how the debt snowball method works.

This approach boils down to paying off your smallest balance first, disregarding the rate of interest. Once the smallest debt is paid, you roll that amount to the next smallest balance and so on. As it gains momentum and speed, you move ahead from smaller to larger balances.

Let’s say you have $1,400 of debt to pay off:

1. $300 Medical bill
2. $500 Credit Card
3. $600 Credit card 

According to the debt snowball approach, you would make the minimum payments on both the credit cards. 

Then pay as much as possible to pay off the medical bill.

You may be tempted to pay your larger balances first, but the fact to acknowledge is that it would take longer to pay off the larger ones first. It would increase your chances of losing the steam and giving up because it would feel like you are making no big progress and other small annoying debts are going nowhere too. By paying the smallest balance first, you will win fast and stay committed.

Should you use this approach for debt repayment?

So, it’s a dilemma whether or not to use the debt snowball approach to pay off debts.

The solution is subjective.

Since this approach doesn’t take into account the interest rates, you may incur more interest charges in the long run. If you don’t have large outstanding balances, then it doesn’t matter in what manner you pay your debts.

Also, it varies from person to person. If you are someone who wants to get relieved of little debts here and there, pay the smaller ones first. But if you drive motivation and efficiency by paying off larger ones then that would be the way to go.

Reduce debt through an extra source of inflow

You can change the rate at which you pay debts only by reducing your expenses or increasing the cashflows. Expenses can be reduced only to a certain extent. But inflows can be infinite. 

Still, trim your expenses and indulge in a side hustle to increase the inflows. 

Some good side-hustles are:

1. Freelance work
2. Your blog
3. Affiliate marketing
4. Reselling

These are time consuming and may not be a cakewalk at first. But once you create a side hustle and make it work for you, it would be easier to pay off debts with passive earning.

Moreover, it would boost your confidence and you wouldn’t have to depend on a single source of earnings.

Conclusion: After effects of Debt Snowball!

Wonder how your life would be when you become debt free? You can have the good night’s sleep without the chattering monkey mind bothering you regarding revolving debt burden. It surely requires efforts to pay off all your debts, but you can change your financial future for good.  Don’t let financial setbacks restrict you. A happier version of you is yet to arrive!