By Sabrina Karl
For those with multiple debts, the prospect of one day getting out from under them can seem overwhelming, even undoable. One strategy for tackling this psychological feeling of defeat is the debt snowball method, which works on the principle that the best strategy is the strategy you’ll stick to.
The idea is to build a growing snowball by starting small, and rolling forward into bigger debt reductions as you go, with gratifying pay-offs along the way. To do this, list all of your non-mortgage debts from lowest balance to highest, regardless of interest rate or minimum payment.
Once you’ve identified your lowest balance, that will become your priority debt until it’s paid off. Each month, you’ll make only the minimum payment on your other debts, and then as much extra as you can afford to pay down on the priority debt.
When that smallest debt is erased to zero, you’ll reap the snowball method’s big payoff: the satisfaction of having scored a win. By vanquishing one of your debts, and having one less payment every month, you’ll enjoy the feeling of personal victory, which will inspire you to tackle the next debt on your list.
Another key is that when moving to the next debt, keep up the momentum and dollar amount of whatever you were paying towards debt the previous month. So if, for instance, you were paying $300 on your priority debt, you’ll now start applying that $300 to your next debt, on top of the monthly minimum you were already covering.
Though the debt snowball method could have you paying off debts with lower interest rates before those with higher costs, the secret of its success lies in delivering periodic wins that will keep you motivated and committed to reaching your debt-free future.