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What is the debt “snowball” method?

On Behalf of | Oct 6, 2020 | blog |

There are many methods to manage and repay debt. Two of the most popular methods are the “snowball” and the “avalanche” debt payment method, respectively.

Both of these strategies have pros and cons, and the best one for you depends on your temperament and your situation. According to NerdWallet, the snowball debt strategy involves paying off the smallest debt first before moving on to the next smallest.

What does this look like? 

Essentially, you will want to ensure that you can pay at least the minimum amount on all of your debts throughout this process. Then, you should arrange your debts from smallest to largest. With the debt snowball method, the payee is only concerned with the actual size of the debt, not the amount of Interest that he or she is paying on the debt.

Then, the payee will focus on removing the smallest debt first. The idea is that by removing the smaller debt first, the payee has more incentive to pay off the next smallest debt. This method prevents the payee from feeling as though he or she will never get rid of the debt by providing progress by means of debt elimination.

What are the negatives? 

The biggest negative to the snowball payment method is that it ignores interest. By focusing on the smallest debt first rather than the debt with the most interest, it is likely that the payee will end up spending more money overall. This is in contrast to the avalanche method where the payee goes after the debt with the highest amount of interest first.