The Snowball Method - The Best Way to Pay Off Your Debts

There are many approaches to erasing debt. Almost as many methods as there are to get into DEBT. One of those methods is called The Snowball Method. Here is an explanation of what it is, how to implement it, and why it may be the best way to erase debts.

The Snowball Method requires you to list out all of your debts. Start by gathering up all of your paperwork and statements and write down every company you have a debt with along with the total balance owed and the interest rate it is at. Next organize the list. There are two ways of doing this:

1. From Smallest Amount to Largest. You list the debts in order starting with the smallest debt and then incrementally up to the largest amount. Then you pay the minimum on all of the debts owed except for the smallest debt. On the smallest debt your throw whatever extra money you can at that debt and continue to do that each month until it is paid off.

Once the lowest debt is paid off, you move on to the next lowest debt. You pay the minimum plus what you were paying on the previous debt and then you pay the minimum on all of the other debts. Repeat and rinse.

2. From Largest Debt to Smallest. This method is exactly the same as the first, except you're attacking the debt in reverse order. The logic behind this is that you knock out the highest debt first and it makes a bigger impact on your overall debt. Sometimes the largest debt is at one of the highest interest rates you have, so the thinking goes that you are saving more MONEY in interest doing it this way.

3. Largest Interest Rate to Smallest. Similar to the second method, this one arranges the order based on INTEREST rate. Here you aim to pay off the highest interest rate first and then the second and so on. The logic being that this way makes the most sense mathematically because you are eliminating high interest rate DEBT that will cost you to keep it around longer than necessary.

However, while mathematically correct, the truth is your aim is to get all DEBT paid off as quick as possible. In a matter of a couple of years. The amount of interest you would incur during that time would be relatively small. If you weren't going to pay it off for 10 years or more, then this way might make more sense.

Ultimately, use whatever method you think will work best for you. From experience the best method would be #1 - pay off the smallest DEBT first and work your way up to the largest. Mentally this gives you a boost when in the beginning you are eliminating lots of small DEBTS. It feels like you are making progress. If you start with the largest one first, it may take more than a year to pay off and you will lose momentum because it won't feel like you are making any progress.

Which ever method you choose, attack it with a vengeance, erase DEBT, and build wealth.