In light of recent events, debts have become a big part of most households in the country. So, it would help if you found the most efficient way to clear such expenses. Down this road, one recourse worth considering is the debt snowball method. Here, we’ll be sharing all you need to know about this method of clearing debt, from what it is to how to use it and its pros and cons.
The Debt Snowball Method – What It Is
In basic terms, this debt repayment method involves clearing what you owe faster by making extra payments on each of your loans one at a time. You start this debt clearance process by making additional payments on the loan with the smallest repayment balance first and then move up from there. Thanks to this, depending on how much extra money you have to work, you can clear all you owe in a shorter time frame.
How To Use The Debt Snowball Method In 6 Steps
- Step One – List all the loans you owe and their repayments.
- Step Two – Arrange the loans with the lowest to the highest loan balance.
- Step Three – Establish how much extra money you can afford to pay on the smallest loan in addition to your standard monthly payment.
- Step Four – Start paying the value from Step Three. During this time, ensure that you make the minimum monthly payments on all the other loans.
- Step Five – Move on to the next smallest loan once you’ve cleared the initial loan.
- Step Six – Repeat Steps Three through Five.
And with that, you’ll be well on your way to debt-free!
Pros and Cons
As we mentioned earlier, there are two sides to this coin. So, some benefits of leveraging this debt-clearing approach are that;
It Increases Your Motivation Levels
Using this approach, you’ll see yourself wiping out one debt after another. Because of how easy it is to see progress here, you’ll be encouraged to keep at what you’re doing till you’re finally wholly debt-free.
The Method Is Simple To Implement
Unlike some other methods of clearing debt, the debt snowball method is simple and uncomplicated to follow. As such, you won’t have any trouble using it, even if you aren’t familiar with financial affairs.
On the downside;
You’ll End Up Paying More Interest On Your Larger Loans
As you’d likely have figured out from how this system works, you ignore your heavier debts for the most part here. It means that by clearing your smaller debts and getting to the larger ones, you’d have racked up significant interest, especially if those loans have a higher interest rate.
What To Do
It is a simple method is a simple and effective way to clear debts, but it isn’t for everyone. You must ensure that the larger loans you make, only minimum monthly payments, don’t end up stifling you.