How to use the “Snowball Method” to reduce debt

Note with words pay off debt concept.Even if you yourself are financially secure, please consider passing this article on to someone else who may be struggling with a debt burden – an employee perhaps, or a friend or relative.

Owing high amounts of debt and not being able to pay it off is one of the most demoralising things a person can experience. You feel you are dangling out of control as you watch your debt grow month on month. You know it’s unsustainable but what do you do?

Try the “snowball method”

In the United States people with various types of debt like a mortgage, motor vehicle instalments, some credit cards and, say, an unpaid hospital bill have started to pay off the smaller debts first. These smaller debts are usually credit cards where the interest rate is the highest. They pay off these credit debts one by one and then move to the next highest interest rate debt which is probably the medical bill which they systematically pay off – until just the motor car and mortgage bond are left.

This makes financial sense paying off the higher interest rate amounts first.

It is called the “snowball method” as by paying off the credit card debt, then moving to the medical owing, you start to build up a momentum of paying debt off. As you keep paying debt, so the reduction in your debt is likened to a snowball rolling down a hill and getting bigger as it speeds up. Paying off debt thus becomes a habit and the feeling of helplessness progressively eases off.

Be careful, as not all indebted people are suited to the “snowball” concept. For example, if your credit card debt exceeds your mortgage, it doesn’t follow that you should pay the mortgage off first – remember the credit card interest rate is usually double that of the bond.

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