Are you up to your eyeballs in debt? Stressed out because your payments are as large as your paycheck? You’re not alone. The average American carries more debt, especially student loans, than at any other point in history. However, there is a way out. If you want more of your paycheck to land in your own pocket, the Snowball Method of debt payoff just might be perfect for you.
Staring Off: Get current. Okay, so this isn’t part of the Snowball Method. But your first project when tackling your debts should be to get current on any loans you may have fallen behind on. Not only are they stressing you out and racking up late fees, they’re also hurting your credit score – which could make your next big purchases even more expensive (or impossible.) It may take a few tough phone calls, but find out how much it will cost to get current on everything and pay whatever it takes.
Now you’re ready to snowball!
Grab paper and pencil and make a list of all your loans, from smallest to largest. And since you’re already here, tally up the numbers and find out exactly how much total debt you have. An astonishing number of people have no idea how much they owe! But knowledge is power, and you’re well on your way.
Not the largest one, and not the one with the highest interest rate. Why? Because your smallest loan will probably be pretty easy to pay off, and that feeling of victory will turn into a powerful motivator to keep going.
Throw all of your extra money at this small debt. Do it right now, today, because interest accrues daily! And the next time your paycheck comes in, hit it with more. When you get birthday money, bludgeon it again. Keep doing this with all the money you can spare until that small debt is paid off.
Believe it or not, this is actually a very important step in the debt-payoff process! Let yourself feel the sweet, sweet relief of eliminating one payment from your life forever. Remember this feeling when you’re tempted to quit. And allow it to get you all fired up to tackle the next debt.
Your next target is – you guessed it – the next smallest loan on your list. And this time it’s going to go even faster. Why? Because now that you’ve eliminated one debt (and one payment,) you’re going to take that payment amount and apply it to this next debt. So basically, now that you’re on the second debt, you’re paying double. When you get to the third debt, you’ll be paying triple! Imagine how fast that will go!
If you do this for each loan you pay off, by the time you get to your very last and largest loan, the payments you make will be so huge that the debt will evaporate right before your eyes.
And that’s why it’s called the Snowball Method. Imagine a snowball rolling downhill: as it rolls, it picks up more snow and gets bigger, which makes it roll even faster, which makes it even bigger, and even faster, etc. That’s exactly how this debt payoff method works. Every time you pay off a debt, more money from your paycheck is freed up, which you can then apply to the next debt, which frees up even more money, until all your debts are gone. And then with no more payments to make and all that extra money on your hands, you’ll feel like you just got a raise!