Think about making a snowball and rolling it down a hill. It will start small, but as it gathers snow it grows larger and larger, gaining speed and momentum along the way. By the time the snowball reaches the bottom of the hill it is a large boulder.

This is the same theory you can apply to paying off your debt. You'll start small, and over time, gain momentum. The debt snowball method is a strategy in which you pay off your smallest bills first and roll those funds into larger bills. It gives you power over your debt, and can be a great motivator to keep going.

Before your try this approach, here's what you need to know about the snowball method.

  1. Make a list off all your debts. Sort them in order from the smallest balance to the largest. Be sure you have budgeted enough to cover at least the minimum payment for every debt.

    For example, your total minimum payment for all debt - credit cards, medical debt, car loans, student loans, etc. is $1500.
  2. Review your monthly budget and assess how much extra money you could put towards your debt. It is important to continue to save and have enough for emergency expenses. Don't put your whole budget into debt payments.

    You decide you can afford to pay $1600 each month towards your debt. This gives you an extra $100 over your minimum payments.
  3. Each month, make the minimum payment on each balance, except the smallest. Put as much as you can towards that balance.

    Your smallest balance is on your credit card. The minimum payment is $50. You take that extra $100, and pay $150 towards your credit card each month.
  4. Once you have paid off the smallest balance, gain momentum and "snowball", by rolling all that money into the monthly payment for the next smallest balance. Continue to make the minimum payments on all other balances.

    Congrats! You have paid off your credit card bill! Now, take that $150 and add it onto your next smallest balance - a $250 car payment. Now your payment is $400 until your car is paid off.
  5. Continue to repeat this process until you are debt-free.

The primary advantage of the snowball method is the mental boost. You reward yourself with small wins along the way to being debt-free. Getting these quick wins in the beginning can be very motivating to continue the journey. Adversely, if you would begin with the highest balances or the highest interest, you may save a few more dollars along the way, but you lose that motivating factor. It is easier to quit when you feel like you are not seeing any progress.

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