Debt Snowball Method
“Debt is not just a financial vulnerability, it’s also an emotional one. To let go of the things that are weighing you down in life and leaving them behind gives you freedom and security.”
When you hear the word snowball, you’re probably picturing a round mass of snow pressed together, often used for throwing during playful activities in the winter. You probably have a smile on your face just thinking about it.
Sorry to disappoint you, but the snowball we’re going to discuss today, has nothing to do with playful activities. But if you’re in debt, this story I’m about to share might actually bring that smile back.
In the vibrant city of New York, lived an ambitious entrepreneur named Carly. Carly held a bold vision to transform the tech industry with her innovative concepts. Fueled by her unwavering passion, she ventured to establish her own company. However, the path to prosperity was strewn with financial obstacles. To kickstart her startup journey, Carly found herself grappling with a substantial amount of debt, from towering credit card bills to a hefty loan for her office space, alongside personal loans from loved ones.
As Carly's business started to blossom, so did her debt. An ominous cloud of financial burden loomed large, threatening to eclipse the success she tirelessly pursued. Recognizing the urgent need for a financial game plan to regain control, Carly stumbled upon the debt snowball method.
The debt snowball method entails tackling debts from the smallest to the largest, irrespective of interest rates. The concept revolves around building momentum as each minor debt gets paid off, leading to larger payments directed towards clearing the bigger debts, much like a snowball cascading down a hill, gathering size and speed.
Carly initiated her journey by meticulously cataloging all her debts from the tiniest to the most substantial. She honed in on her budget, trimming unnecessary expenses, and directed her focus on eliminating the smallest debt first while meeting minimum payments on the rest. With each debt victory, she redirected the liberated funds towards the subsequent smallest debt, progressively amplifying the payment amounts.
Months evolved into years, yet Carly's commitment remained unshakeable. Every small triumph was commemorated, serving as fuel to propel her forward. Her company thrived, and with each debt she vanquished, she sensed a weight lifting off her shoulders.
Finally, after years of unwavering dedication and financial prudence, Carly delivered the final installment towards her largest debt. She had officially emerged debt-free. The flood of relief and the surge of accomplishment were simply indescribable. Not only had her company succeeded, but she had also conquered her financial challenges.
Action Items
Carly’s story of overcoming her mountain of debt is truly inspiring. Not to confuse the Debt Snowball Method with the Debt Avalanche Method, which I recently wrote about at Futurvest, this debt reduction strategy is designed to help you pay off your debts in a way that builds momentum over time.
If you’re in debt and want to take advantage of this method, here's how to get started:
List Your Debts: Start by listing out all your debts from the smallest balance to the largest, regardless of the interest rates.
Minimum Payments: Make the minimum payments on all your debts except for the smallest one.
Extra Payments on the Smallest Debt: Put as much extra money as you can towards the smallest debt until it is completely paid off.
Roll Over Payments: Once the smallest debt is paid off, take the amount you were paying on that debt and add it to the minimum payment on the next smallest debt.
Repeat: Continue this process, rolling over payments to the next smallest debt each time one is paid off, until all debts are cleared.
The key to the debt snowball method is that it creates a psychological win by allowing you to see debts disappearing quickly at first. Hopefully this can provide you a motivational boost, encouraging you to keep going until all your debts are paid off!
~Alex
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