![]() ![]() In this scenario, you’ve got four different debts: Now, let’s see an example of how this method works in real life. Plus, you’ll still have all your other small, annoying debts hanging around that you also have to keep paying on. Why? Because it’s taking forever to gain traction! You’ve started with the hardest debt, instead of the easiest. Pretty soon, you’ll lose steam and maybe give up altogether. But here’s the deal: If you start paying on your debt with the highest interest rate first (which is usually also your biggest balance), it could be a while before you see any progress. Maybe you’ve heard of the debt avalanche method, where you pay your debts in order from highest to lowest interest rate. And my brain was like, That was awesome! Let’s do it again! That’s the power of psychology-and the debt snowball. Once I saw my smallest credit card debt get knocked out, I did a little happy dance (internally-you don’t want to see me dance externally). And if you believe it, you’ll start behaving like it. The quick wins you get with the debt snowball help you believe you can actually pay off your debt. In fact, personal finance is 80% behavior and only 20% head knowledge. Your mindset has more to do with this equation than math ever will. Trust me, you don’t need to have a finance degree or be a mathlete to beat debt. The debt snowball works because it’s all about changing your behavior. And the excitement you get from paying off your smallest debt super quick will motivate you to keep plowing through your debt, all the way to that debt-free finish line! Step 5: Repeat until each debt is paid in full and you’re completely debt-free!Īs you knock out your debts one by one, the amount of money you have to throw at the rest of your debt grows-kind of like a snowball rolling down a hill (hence the name). Step 4: Take what you were paying on your smallest debt and add that to your payment on the next-smallest debt until it’s gone too. Step 3: Throw as much extra money as you can on your smallest debt until it’s gone. Step 2: Make minimum payments on all your debts except the smallest debt. Step 1: List your debts from smallest to largest (regardless of interest rate). When the smallest debt is paid in full, you roll the minimum payment you were making on that debt into the next-smallest debt payment. The debt snowball method is a debt-reduction strategy where you pay off debt in order of smallest balance to largest balance, gaining momentum as you knock out each balance. So, once you’re current on all your bills and have $1,000 saved for your starter emergency fund, it’s time to get that snowball rolling! If you’re following Dave Ramsey’s 7 Baby Steps, you know that Baby Step 2 is to pay off all debt (except your house) using the debt snowball. It’s how I paid off $40,000 of consumer debt in just 18 months! And if it worked for me, it’ll work for you too. The debt snowball method is the fastest way to pay off your debt. If you’re looking for a way to get out of debt for good, let me introduce you to your new DFBFF (debt freedom best friend forever): the debt snowball.
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