05 Jun The Snowball Debt Reduction Method: Will It Work For You?
The second you make the decision to start paying off your accumulated debt you start searching for the fastest and least painful way to make it happen.
In your searches you’ll come across many different methods and ways that swear they are the next best thing in debt elimination. The key is finding the method that is going to be work the best for you.
A very common approach is the “Snowball Method”. This method works by building on momentum.
Think of a snowball rolling down a hill picking up more snow as it descends and ultimately getting larger and larger until it reaches the bottom.
Some people can use this method and get their bills paid off in no time. It simply depends on the amount of debt you have. It could take weeks, months, or even years.
Preparing The Debt Reducing “Snowball”
It all starts with an honest monthly budget. Make sure you keep it realistic. Your budget should consist of amounts you’re actually able to stick to.
Then comes the part of reviewing how much debt you actually have. The easiest way to do this is by making a list.
On this list you’ll want to include the amount owed, the minimum amount due each month, and the interest rate for each source of debt.
From this list you will sort your debt by amount owed, ignoring the interest rates. Be sure to place the lowest amount owed at the top and the highest at the bottom.
You’ll be focusing on the lowest amount first.
Getting The “Snowball” Rolling
To start the “Snowball” you’ll need to consult your budget to determine how much money you have left over after all of your bills have been paid for the month.
This extra amount is what you will use to start paying off your debt. Take the minimum payment of the first item on your list and stack this extra money on top of it.
So, if it’s a minimum amount of $45 and you have an extra $250 in your budget that month, then your payment on that bill will be $295 per month until you pay it off.
The more extra money you can scrounge up per month, the faster you will get each debt amount paid off.
While you are paying the minimum amount owed and throwing the extra money onto the first bill, you will only pay the minimum amount owed on your other debt amounts.
After the first bill is paid off you then take the $295, which is the $45 minimum amount and the $250 extra per month, and your going to apply it to the next bill in line.
So, if you’re next debt amount’s minimum payment is $80 per month, you will start applying $375, which is $295 plus $80, until it’s paid off.
Remember, while you are finished with the first bill and you have moved the payment amount to the second, you will still only pay the minimum amount owed on the remaining bills.
You will continue this pattern until all of your debts are paid off. It is possible that at one point you can be paying $1000 toward one bill.
This will help take the stress out of paying your bills by never asking for more than you’re already paying towards your bills.
It can also mean the further you get down your list the larger the amount you are throwing toward each bill which means paying your debt off faster than before. You just can’t beat that!
Does It Actually Help You Reduce Debt?
That’s the big question, you’ve seen how to do it but does it actually help pay your bills off faster? The answer is yes and no.
Like every debt management method it comes down to sticking to the plan. This method can absolutely work for you and in less time than just tackling your debt with no plan at all.
The main appeal of the “Snowball” Method is that it works by giving you little victories when you pay off a debt amount and move on to the next one.
You can go out and celebrate with a drink or a nice meal with friends or family.
However, you choose to celebrate this method can keep you motivated and moving forward by supporting your hope that it is possible to pay off your debt.
Bolinske Law is committed to helping you find the best solutions to your debt.
If you have been searching for an answer, but aren’t sure if this is the solution for you, give us a call or contact us here.
We would love to sit down with you and review different options that might work for your personal financial situation.