The debt snowball is the most popular method for reducing debt. In the debt snowball, you pay an extra amount towards your debt on top of your minimum payments. As you payoff balances, you take the amounts from your minimum payments that you are no longer paying and add that to the extra amount. There is a divergence when it comes to determining how to go about the debt snowball.
Method Number 1: The Higher Interest Debt Snowball
The higher interest debt snowball is the debt snowball method that involves listing out your credit cards by their interest rates. You then start the debt snowball by paying off the credit card with the highest interest rate, and working your way down the list.
As you payoff the highest interest rate cards, the amount of interest that you will pay will decrease as the balances decrease. This will speed up your credit card balance reduction as you get closer to the end.
Method Number 2: The Low Balance Debt Snowball
The low balance debt snowball is the snowball method that invloves listing out your credit card balances in order from lowest to highest. You then payoff the card with the lowest balances first and then move on to the next highest balances. The reasong behind this is that it will provide you a little psychological motivation to payoff the rest of your cards.
Which ever debt snowball method you choose to employ, you will be making a step in the right direction.
Personally, for our debt snowball from hell, we utilize a merged method of the two. we have a lot of balances on quite a few cards, and our interest rates are all about the same. We generally payoff the card with a low balance and a higher rate than the others.
When it comes to the debt snowball, the most important part is consistency. Just settle on a payment to reduce your debt and make sure that you pay it off every month. You can even choose to make automatic debt reduction payments.