How To Use The Snowball Method To Get Out Of Debt Easier

The Snowball Method Is Gaining Popularity

If you’re drowning in debt, the Snowball Method might be exactly what you need to break free.

The Snowball Method not only pays off your debt faster but also gives you a sense of control and confidence along the way.

This method has gained popularity because it doesn’t just focus on the numbers, it focuses on the psychological benefits of small, incremental victories that keep you motivated.

It’s a strategy that’s been proven effective for thousands of people who have struggled to get out from under their debt, and we’ll reveal exactly how to use it in this article.

Understanding the Snowball Method

The Snowball Method is about creating a plan that feels achievable, even when you’re staring down a mountain of debt.

Here’s how it works: you start by listing all your debts, from the smallest balance to the largest.

Don’t worry about interest rates at this point; the focus is on the balance size.

You then make the minimum payments on all your debts except for the smallest one.

For your smallest debt, you throw every extra dollar you can at it until it’s paid off.

Once that debt is gone, you take the money you were using to pay it and apply it to the next smallest debt, and so on.

And that’s what makes it a snowball effect, hence the name.

What makes this method effective is the psychological boost you get from seeing progress early on.

Paying off a small debt feels like a significant win, especially if you’ve been struggling with debt for a while.

Why the Snowball Method Works

Research in behavioral psychology shows that humans are wired to respond positively to small, incremental rewards.

In the context of debt repayment, these small victories are crucial for maintaining motivation.

A study by the Harvard Business Review found that people are more likely to stick with their goals when they can see tangible progress.

And this is exactly what the Snowball Method provides.

Each time you pay off a debt, you experience a surge of motivation that propels you to tackle the next one. It’s this cycle of positive reinforcement that keeps you going.

But there’s more to it than just motivation. The Snowball Method also helps you build financial habits that can last a lifetime.

As you pay off each debt, you not only reduce your overall financial burden but also develop a disciplined approach to managing your money.

The method encourages you to be mindful of your spending, to prioritize debt repayment, and to make sacrifices in the short term for long-term financial health.

In a way, the Snowball Method is like training for a marathon. You don’t start by trying to run 26 miles on day one. Instead, you build up your stamina with shorter runs, gradually increasing your distance as your confidence and ability grow.

Moreover, the Snowball Method taps into the power of momentum.

Momentum is critical in any endeavor, and it’s especially important in debt repayment.

As you see your debts shrinking and your confidence growing, you gain a sense of control over your financial future.

Breaking Down The Method

Let’s dive into how the Snowball Method works in real life, especially when you’re dealing with something tricky like credit card interest.

Did you know? The interest rate you see on your credit card—say 20%—isn’t a flat fee taken off the total amount you borrow. Instead, it’s calculated on what you owe and it’s divided by the number of days in the year. Let’s break that down.

Imagine you have three debts:

1. Credit Card A: $1,200 balance with 20% interest.

2. Credit Card B: $3,000 balance with 15% interest.

3. Personal Loan: $7,500 balance with 7% interest.

With the Snowball Method, you start by focusing on Credit Card A, the smallest debt.

Even though Credit Card B has a lower interest rate, the Snowball Method emphasizes knocking out the smallest debt first to build momentum.

Here’s how the interest on Credit Card A actually works:

Daily Interest Rate: That 20% interest rate you see? It’s not hitting you all at once. It’s divided by 365 days, so the interest you’re actually charged each day is a tiny bit, about 0.055%. It’s called the Daily Periodic Rate (DPR).

Interest Calculation: Each day, this small percentage is multiplied by whatever balance you still owe. So if you owe $1,200, here’s the math: 0.055% of $1,200 is about 66 cents. That’s how much interest adds up each day you carry that balance.

Compounding Interest: This is where it can get sneaky. If you don’t pay off your balance, the next day’s interest is calculated not just on the $1,200 you originally owed, but on the $1,200 plus that 66 cents from yesterday. This compounding effect can cause your debt to grow if you’re only making minimum payments.

Now, let’s see how the Snowball Method tackles this:

1. Step 1: Focus on Credit Card A
   Start by making the minimum payments on Credit Card B and the Personal Loan. Then, throw every extra dollar you have at Credit Card A to pay it off as quickly as possible. The goal is to eliminate that daily interest charge building up on the $1,200 balance.
   

2. Step 2: Move to Credit Card B
   Once Credit Card A is paid off, take the money you were using to pay that debt and start applying it to Credit Card B. Now that you’ve freed up more cash, you can knock out this bigger debt even faster.
   

3. Step 3: Pay off the Personal Loan
   After Credit Card B is gone, you’ll have even more money to put toward the Personal Loan. By this point, you’re paying off debts faster and faster, which keeps you motivated to continue.

The Snowball Method is all about getting those quick wins to build your confidence.

And understanding how something like credit card interest really works gives you the knowledge to manage your debts smarter.

The BMM Takeaway

The Snowball Method is a strategy for paying off debt that also builds confidence and financial discipline.

By focusing on small, achievable wins, you create a positive feedback loop that reinforces your ability to manage and eliminate debt.

As you continue to pay off debts and build momentum, you’ll find that the skills and habits you develop through the Snowball Method extend to other areas of your financial life.

Whether it’s saving for an emergency fund, investing for the future, or simply managing your day to day expenses, the confidence and discipline you’ve built will serve you well.