Have you heard of the snowball effect? If you’ve ever made snowballs as a kid, you know the easiest way to make one bigger is to keep it rolling. All you need is a handful of snow, and a nice big hill to roll it down. The debt snowball effect works on the same principle, and knowing how to utilize it properly can help you avoid a vicious cycle of debt that keeps you from reaching your financial goals.
Every decision counts and making choices that all work toward the same goal allows you to build off the momentum you create. If you’re starting the New Year broke, learn how the snowball effect can help you get your priorities in order, eliminate your debt and even build your savings.
Once you’re current on all your bills and you have $1,000 set aside for an emergency fund, you can really start getting to the root sources of your debt. But where do you start? The snowball method is a debt reduction strategy that helps you eliminate your debts faster by paying them off in order of smallest to largest, gaining financial momentum as each balance is paid off.
Not sure if this method would work for you? Let’s say you have these 3 debts:
Begin by determining what the minimum payments are to start your debt reduction snowball. Once the minimum balance has been covered, figure out how much more you can comfortably put toward the smallest debt. In this scenario, let’s say that’s $500 a month. If you throw $550 at your $1,000, you’ll have your first debt cleared by month 2. Then you can roll the $50 from those medical bills into the minimum you were already putting toward your credit card debt. Then, simply continue the process and with all the momentum you build, you’ll have all your debts paid off sooner than you ever imagined.
This simple system works because it builds good habits and helps you get fast results. The debt snowball method takes the math out of paying off your debts. When you have a plan in place that works and you can really see the results almost immediately, you’re that much more likely to keep it going.
In the example above, you could be debt free in a little over a year. The biggest mistake people make when it comes to paying back their debt is in setting their priorities. If you start with your biggest bill first, chances are you’re going to lose steam before you even finish paying off that initial debt, and you’ll still have those smaller debts slowly bleeding you month after month.
Still need a little help getting started? If you’re wondering, “Where can I find a title loan near me?” getting the fast cash you need to start knocking out your debts one by one could be a few clicks away. It’s not about over-extending yourself – it’s all about how far a little planning and patience can go. If you start small, develop good habits, and stay on top of your payments, your debt-defying snowball will help you become debt-free in no time.