Know About Snowball Effect Of Paying Off Debts

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What Is Debt Snowball Effect?

The debt snowball method is an effective strategy for debt repayment. This method essentially works for those borrowers who grapple with issues, such as outstanding balances. This method essentially offers a strategy to get rid of debt by prioritising the repayment of smaller debts first and then moving on to bigger ones.

Debt Consolidation


The main objective of the debt snowball method is to build momentum in debt repayment, something similar to a snowball gaining speed while rolling downhill. It is a method that focuses on taking care of the smallest debt first, regardless of its rate of interest as compared to the other debts.


Emergency Savings

Before going ahead with this strategy, it is important to build up emergency savings to handle any unforeseen expenses that may crop up along the way.


Implementing The Snowball Method

First, as a borrower, one needs to confirm whether one has sufficient funds for minimum monthly payments of the outstanding debts. Next, one should compile a list of all outstanding debts, arranged from the smallest to the highest amounts owed. When creating this list, it is important not to consider the interest rate of each debt.

Snowball Method

Pay The Minimum Debt First: 

Once all the debts are listed, as a borrower, one should make the minimum payments to all outstanding debts except for the small ones. Moreover, one must also compile a list of all outstanding debts, arranged from the smallest to the highest amounts owed.

Debt amount

Paying Maximum For The Smallest Debts

Borrowers must allocate for the smallest debts first. For these smaller debts, they must assess the extent of funds beyond the minimum payments. Apart from reserving some funds for emergencies, any surplus should be used for making extra payments on the smaller debts.

Smallest Debt

Continue The Process Until Debt-Free

When one gradually settles debts, one can release more funds and strengthen the capacity to address the remaining outstanding balances. One should not be deterred by interest rates when moving from the smallest debt to the next one and beyond. This process demands dedication and a shift in behavioral patterns, but it is a rewarding journey.