The debt snowball is a type of accelerated debt repayment plan. You list all of your debts from smallest to largest. You then devote extra money each month to paying off the smallest debt first; you make only minimum monthly payments on the others. When the first balance is settled, you move on to the next smallest.
Answer: both! The truth about the debt snowball method is that it's a motivational program that can work at eliminating debt, but it's going to cost you more money and time – sometimes a lot more money and a lot more time – than other debt relief options.
The snowball and avalanche methods are nearly identical in that you'll be able to pay off your debt quickly (depending on how much debt you have). Staying motivated is more important than a few extra dollars in interest that you'll save through the avalanche method.
The debt-snowball method is a debt-reduction strategy, whereby one who owes on more than one account pays off the accounts starting with the smallest balances first, while paying the minimum payment on larger debts.
Personal Loan
Always pay the monthly minimum required payment for each account. Put any extra money towards the lowest balance — the personal loan. Once the personal loan is paid off, use the money you were putting towards it to vanquish the next smallest balance — the credit card debt.
If you default on a credit card, loan, or even your monthly internet or utility payments, you run the risk of having your account sent to a collection agency. These third-party companies are hired to pursue a firm's unpaid debts. You're still liable for your bill even after it's sent to a collection agency.
Here are four ways to wipe out $5,000 of credit card debt — and stay out of debt going forward.
The 6-step method that helped this 34-year-old pay off $30,000 of credit card debt in 1 year
It's Best to Pay Your Credit Card Balance in Full Each Month
Leaving a balance will not help your credit scores—it will just cost you money in the form of interest. Carrying a high balance on your credit cards has a negative impact on scores because it increases your credit utilization ratio.
If you have credit cards with the same interest rates, you may want to pay off the smallest balance first and then work on the largest. You also may want to put the loans that save you on your taxes at the end of your debt payment plan. For example, your student loans, home equity loans, or a second mortgage.
The best method is the one you can stick to. If you are a person that needs more incentive to pay off debt, then stick with the debt snowball method. If devoting money to interest payments—instead of denting principal—drives you nuts, then you might prefer the debt avalanche approach.
Saving money on interest is more important
Paying off the highest interest rate balance first may take less time and allow you to save money on finance charges, especially if your highest interest rate credit cards also have higher balances.
Here are 10 easy ways to pay off debt:
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