Climb through any study on consumer debt and you’ll realize—Americans are struggling. Almost half report having more debt than they feel comfortable with, and one in three report spending more than they can afford each month. U.S. households just don’t have the funds to thrive. How can they even get ahead?
Depending on the debts you face, you might want to try a unique payment strategy. One I often recommend is the Debt Snowball. It’s a plan that’s worked for many of my clients, and I’m excited to share it with you.
Keep in mind, the Debt Snowball is a process. It’s not an end-all solution, but it does help when you’re facing countless bills.
What is the Debt Snowball?
For those seeking a Debt Snowball definition, realize that it’s best described as a payment strategy that targets your smallest debts first. The goal is to pay off smaller liabilities, then roll this saved money on to the next bill. And so on. And so forth.
The Debt Snowball is a process that takes time, but it’s extremely helpful. What’s great about this strategy is it gives you a boost of confidence after each bill is eliminated. A dopamine hit gets released. Within months, you can make serious progress.
How the Debt Snowball Works
To see the Debt Snowball explained, think of it as a way to maintain positivity while pursuing financial health. Begin by targeting your smallest debt. Make minimum payments on everything else. Throw every extra dollar at this smallest bill. Once it’s paid off, roll that saved amount into the next smallest liability.
Repeat this process until all your debts are paid off. This method not only helps you stay motivated but also keeps you focused on your path to freedom.
The Debt Snowball is a process that’s simple and effective. Anyone who’s undergone this strategy can tell you how encouraging it is when tackling a mountain of debt.
Is the Debt Snowball Best?
Sometimes my clients ask: “is Debt Snowball best?” It depends on your situation. Logically speaking, the Debt Avalanche saves you more money, since it focuses on bills with higher interest rates. However, this process can be a sludge. Avalanche strategies can take years to complete.
In contrast, the Debt Snowball feels much faster, and it’s incredibly powerful. Hope gets injected into your veins as each debt gets paid off. In times of discouragement, this hope can be refreshing.
In the end, you must choose the strategy that works for you. Many families select the Debt Snowball because it feels doable. But overall, the best option is the one you can stick to. Talk with your spouse, pray, and decide if the Debt Snowball is your most effective strategy.
Use the Debt Snowball to your Advantage
To streamline your chances at success, use a tool like a Debt Snowball Calculator with Amortization. This application will help you decide which bills to tackle first, assuming you’re still deciding on a strategy.
I use a simple, free calculator, which you can find here. Whichever amortization tool you settle on, utilize it to input your loan amounts, terms, and interest rates. Here’s a list of possible liabilities you may have:
- Credit cards
- Accounts payable (for businesses)
- Monthly bills overdue
- Unsecured loans
- Family loans
- Education loans
- Vehicle loans
- Pledges, promises, and IOUs
- Mortgage loans
- Other loans
Input your numbers into the amortization calculator. This will tell you:
- How much money you need to pay each month per bill.
- How many years it will take to pay off the bill.
- How much of your payment goes to interest (monthly charges) or principal (what you actually owe).
Record this information on a spreadsheet. Here’s an example of what your answer might look like for each loan:
Most loans have interest rates available, so inputting these figures is easy. But in some cases, you have to dig. Credit cards, for instance, make it hard to find interest rates. If you can’t quickly locate the details, search online in your banking profile or call the company directly.
What I find most useful about an amortization calculator is it lists out every detail you need to make informed decisions. Still not sure if the Debt Snowball is best? Assemble a list of all your loan amounts and terms. Then, make a decision.
Conclusion
As you can see, the Debt Snowball is a process; it takes commitment. But if you stick to it, you’ll find that experiencing financial freedom is possible.
In the end, you have to choose the strategy that best meets your goals. If other methods aren’t working, give the Debt Snowball a try. Stay disciplined, and remember—wealth building is a marathon, not a sprint. Even if it takes years to eliminate debt, remain committed to the process.
PS: To streamline your debt-free journey, check out my lesson, “Debt Avalanche and Snowball,” from my Practical Tools Collection. Once you finish the video, schedule a free 15 minute Zoom session with me so we can craft a plan for financial freedom.