For many people, getting out of debt appears impossible. Having been in debt for many years, even following the strictest method of debt elimination can appear monumental. However, one method that stands out from others is the snowball strategy. Unlike others, debt snowball method is aimed at creating noticeable results at the earliest possible instance and building momentum to clear other debts.
How the snowball strategy works
- Starting with smart budgeting
It is important to note that proper budgeting is one of the core components of using and succeeding with the snowball method. This is because the budget allows you to see where the money goes every month. It is from the budget that you can identify excesses and nip them to help reduce the budget. For example, you could cut the daily transport and meals costs through cycling to work twice every week and carry lunch three days every week.
- Make a complete debt list
To get the snowball rolling, you have start by creating a complete list of all debts so that you can start clearing them from the smallest to the highest. At this point, it might also be crucial to reach the creditors and renegotiate the loans in order to get the least amount that should be made every month.
If you have the following debts, make sure to organize them in order of size;
- £350 medical bill (£40 payment/ month)
- £2,500 credit card debt (£60 payment/month)
- £3,000 car loan (£14 payment/month)
- £10,000 student loan (£56 payment/month)
Note that the target is attacking the loan with the smallest amount and clearing it as fast as possible. Because you have already worked on the minimum amount that should be paid every month, add the additional amount that you saved after cutting on expenses. For example, if you can manage an extra £20 after paying the minimum amount, and can raise an additional £15 after slashing expenses, it means that the medical bill will be attacked with a total of £75. The ultimate effect is that the medical bill is cleared in about 4.5 months.
The next step will be adding all the £75 to attack the next debt. On the 5th month, you will be attacking the credit card loan with a total force of £135 which will help you to clear it faster.
Why the snowball method will work for you
- The ultimate effect of the snowball method is that you will get the entire debts cleared off.
- The momentum that builds after clearing the first few debts becomes monumental and will help to clear all the remaining debts to leave you debt free.
- Because you are attacking the loans starting with the smallest one, you get the motivation that the debts are actually getting cleared.
- Because the process involves smart budgeting, you will get through the debt a more Knowledgeable person. For example, the important trick of cutting on costs will help to address any financial issue in future.
- This is a great way to address poor credit score because debt is one of the main factors that pull it down.