Should I Do the Debt Snowball?

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If you’ve done any Googling on how to pay off your debt, you’ve likely run across the advice of financial gurus like Dave Ramsey. Dave’s pretty famous for advocating a debt-payoff method known as the “debt snowball,” and plenty of people swear by his system.

No, you don’t have to wait for winter to roll around again to put the debt snowball to work for you. But it’s far from the only process that is supposed to help you tackle your debt. And with so many different suggestions on how to best get your finances under control, it and be difficult to understand what method offers the best results.

Should you do the debt snowball? Let’s a take a closer look at this debt repayment plan and see if it could be right for you.

How Do You Use the Debt Snowball?

The debt snowball instructs users with multiple debts to focus on paying off one debt at a time, starting with the loan or card with the lowest balance. In this system, the interest rates of the debts don’t matter.

According to Dave Ramsey, who popularized this method, users should be current on all their bills and have a $1,000 emergency fund established before even starting with the debt snowball. He also advocates that people should be paying the minimum payments on all their debts – and then intensely focusing on putting every cent of available cash towards that one debt with the lowest balance until it’s entirely paid off.

Once your first debt is paid off, users then move to the next-highest-balance loan or credit card. The process continues as the user “snowballs” debt repayment by tackling debts with increasingly higher balances, until at last, the biggest and last debt is paid.

Why is the Debt Snowball Popular?

The debt snowball is popular for a few reasons. By using the snowball, the number of sources of debt are eliminated faster than if users started with higher-balance loans or tackled their debts based on the interest rates. People love seeing Five Big Balances become Four Balances, then Three, and so on.

Seeing that progress provides people with something to feel good and positive about. It helps people see that it is possible to eliminate debt and make good progress with their financial goals. Proponents also argue that the debt snowball method keeps users engaged and focused thanks to these feel-good vibes they receive when they reach that zero balance on one of their debts relatively quickly (think about it: people will pay off a $1,000 card balance much faster than they can tackle a $10,000 loan).

The biggest pro is that the debt snowball enables those little victories that we all savor so much, and often use as momentum to get us on to bigger (and harder) things.

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What Are the Drawbacks?

While the debt snowball makes many people feel really good about their progress, there is a bit of a problem when you run the numbers.

Unfortunately, this system can actually end up costing the people who use it to help them repay debts more money in the long run. When you focus solely on the amount of the debt, and not on what the interest rates of those debts are, you’re ignoring the reality of the math.

Different kinds of debt do cost you in different ways – meaning some debts are more expensive than others. Your most expensive debt, the one that is costing you the most money every month you continue to carry a balance, is the one with the highest interest rate.

But the debt snowball works for many people because human beings aren’t always reasonable, mathematically-driven machines. Many people find it difficult – and overwhelming – to try and take on the biggest, scariest balance before doing anything else.

Even though using this method might cost people more money because it disregards individual interest rates, it may encourage some to stick with their debt repayment plans longer than they would if they didn’t get that satisfaction from the “quick win.”

Should I Do the Debt Snowball?

The ultimate answer? Well, it depends. Personal finance is, after all, personal.

If you are already determined to destroy your debt and you’re highly motivated by the real numbers and the math at work, the debt snowball method doesn’t make much sense for you. Consider focusing on the debt with the highest interest rate first, even if the balance is larger than others. When everything is said and done and you’re 100% debt free, you’ll be satisfied knowing this approach resulted in you paying less in interest over time.

If you haven’t quite come to terms with your debt or accepted the fact that it is a problem that must be dealt with, getting started with the debt snowball may show you that your finances are manageable, and that you can do this. But once you experience that first victory and become excited about kicking the rest of your debts to the curb, you may want to consider switching up the process so you’re paying off your highest interest debts first as those are the ones that are draining your wealth the fastest.

Bottom line, the debt snowball method will likely cost you more money over time than other processes that will help you get out of the red. However, if it works, it works, and at the end of the day all that matters is that you’re motivated and determined to repay all your debts and start living a life of financial freedom.

Image Credit: Mo

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