When the figures look so large, debt can feel like a heavy burden. However, the Snowball Method is a tactic that many Canadians have successfully used. In this blog, let’s discuss this debt repayment method.

Understanding the Snowball Method

The Snowball Method is straightforward. Regardless of the interest rate, you will order your debts from least to the biggest. You prioritize paying off the smallest debt first, while making only the minimal payments on the rest of the debts. When the smallest loan is paid off, you move on to the next. Your payments “snowball” over time, allowing you to apply more funds to your larger debts.

Why the Snowball Method Works

The burden of debt can be intimidating. But success is easier to achieve when your plan takes into account both the rational and emotional components of managing your finances. The Snowball Method, which has been made popular by financial professionals everywhere, appeals to many for the following reasons:

1a. Psychological Boost

Any debt paid off, no matter how small, is a success. Your brain forms a positive feedback loop as a result of this accomplishment. It’s similar to crossing something off your to-do list; the satisfaction you get spurs you on to continue. When you pay off your first minor debt, you start to believe in yourself and the process. This initial achievement serves as an incentive for you to take on the subsequent debts, and so on, until you are debt-free.

b. The Role of Motivation

Human action usually leans more toward emotion than reason. The emotional high of paying off a debt in full cannot be understated, even though it may make sense mathematically to focus on high-interest debts first. For many people, the Snowball Method can be more effective since it caters to our want for instant gratification and progress.

2a. Simplifying Your Debt Approach

Multiple debts can be confusing to manage. The Snowball Method makes things easier by setting a clear goal for you to always concentrate on the smallest debt. You don’t have to determine which loan to pay down next or continuously reassess your finances. This clarity shortens your decision-making process and streamlines your efforts.

b. Avoiding the Stress 

When you have a lot of overwhelming debts, it’s easy to feel helpless or stressed. The Snowball Method assists you in avoiding this feeling of overload by segmenting the process and concentrating on one manageable chunk at a time. Every step feels manageable, and you are always aware of what to do next.

3a. Building Speed Over Time

Imagine a snowball falling from a hill. It starts out small, but as it rolls, more snow is gathered, and it grows bigger and faster. The momentum of your debt repayment also increases as you pay off your smaller loans and roll those payments into the next debt.

b. Compound Payments

Every time you pay off a debt, the funds that were used to make that payment are added to the payment for the next loan. This compounding impact means that as you advance, you’re contributing progressively to reduce your debt obligations, which then hastens the repayment process.

Steps to Start the Snowball Method in Clearing Your Debt

1. List all your debts

Write down every loan you have, from the smallest to the biggest. Credit cards, personal loans, and other debt obligations  you may have.

2. Set a budget for your payments

Decide how much you can afford to pay each month toward your debt. This includes the bare minimum as well as any additional payments you can make

3. Focus on your smallest debt

Spend as much money as you can on your smallest debt while making the minimum payments on your other obligations. You’ll experience a sense of accomplishment after it’s paid off.

4. Roll over payments to the next debt

Spending money to celebrate paying off one debt is not ideal right now. Instead, use the amount you were paying on the cleared debt to the minimum payment on your next smallest loan. You can always celebrate when you have cleared off your debt.

5. Repeat Until Debt-Free

Continually concentrate on the smallest outstanding debt as you go through this process. Your payment for the subsequent debt increases as you pay off each one.

Common questions 

What About Interest Rates?

Some believe that the Avalanche Method, which involves focusing on the debt with the greatest interest rate first, is preferable. The Avalanche Method may theoretically result in longer-term savings, but the Snowball Method takes advantage of the psychological benefits of debt repayment. Choose the strategy you think you can stick with.

Is it Suitable for Everyone?

The Snowball Method works best for people who derive joy from normal, measurable milestones. This approach is probably a good fit for you if you get driven by instant gratification.

What if I Fall Behind?

Life is unpredictable. You might occasionally have unexpected expenses. When this happens, stick to your minimal payments and, whenever you can, go back to the snowball method. 

Conclusion

Debt can be stressful, especially when it seems to be accumulating. But by employing the Snowball Method , you can build up steam and make significant strides toward living debt-free. Keep your eyes on the prize, acknowledge your progress, and watch your debts disappear.

What if you don’t have to repay your debt in full? What if you can reduce your debt by up to 80%, and interest stops immediately? It’s possible. Speak with one of our debt experts at EmpireOne Credit. Call us at (416) 900-2324 to schedule a free consultation with us. Being debt-free feels good.