When it comes to strategies about getting out of debt, there is one phrase that will invariably come up, the infamous Debt Snowball. But do you know what a debt snowball is, how it works, and why it can be so powerful in eliminating debt? Let’s take a look at this financial debt elimination strategy, and as we do you just might find that it is perfect for your needs.
Why is it called a Snowball?
A debt snowball gets its name from the way it impacts your debts. Imagine if you will a snowball rolling down a hill. At first, it is just a small snowball, slowly turning as it gently rolls down to the valley below. But with each rotation, the snowball picks up a little more snow which it adds to its mass.
As the snowball grows, it begins to pick up speed, The faster speed increases the rotation RPM, which in turn adds more snow from the hill onto its mass. This serves to only speed the process up even more. Soon, the small snowball has turned into a runaway snow boulder, ready to smash through anything that lies in the valley below.
And this is what it does to your debts.
Creating the Snow Boulder
The first step in using the debt snowball method is simple enough – pay what you can towards your smallest debt, but keep paying a minimum amount on your other bills. The goal here is to eliminate the smallest debt as fast as you can. So, do what you have to in order to knock that smallest debt out of the park and into oblivion.
Now comes the part where we add to the snowball. Once that smallest debt is paid off, take the money you were using towards it and add it to your next biggest bill. And just like that, you are creating a bigger snowball, aimed directly at your debts.
Keep up the effort towards your payment strategy, and soon, since you have increased the next payment’s size, you’ll have the second one paid off. And what do you do with the funds then? You guessed it, you add that money to the third biggest debt, and once again the snowball gains in mass and speed.
Of course, the speed here is not in rolling down a hill, but rather how fast each bill is paid off. And that is the best kind of speed we can hope for when it comes to eliminating debt.
Keep the Snowball Rolling with Second City Advisors
Once you get the first few debts eliminated, you are going to find that the snowball really flies down that imaginary hill. Keep up the pressure, and add anything you can to the mass of the snowball. Remember, the bigger the snowball (or the payment to the lowest debt), the faster it rolls (pays off the given debt.)
In fact, you should find that the last couple debts either disappear quickly or the payments going towards them is much more effective than you imagined possible earlier. That is the power of the debt snowball, especially when you get close to the bottom of that hill.
As you can see, a debt snowball can be a very effective tool for eliminating debt. The process is simple to start, but the dividends it pays after a little time can make a big difference in your debt load. All it takes is a little effort on your part to get the snowball rolling. Then stand back and watch gravity do its work.
When he is not writing on his wife’s blog or has his head buried in software code, Greg Chaffins can be found celebrating nerdy things on his own website, NerdBeach.