Is Debt Snowball Method The Best Option For You? A Complete Guide for Borrowers in Debt!

The Debt Snowball Method is the best solution for borrowers who have multiple loans against their name. Around 19% of Americans have 1 to 3 loans running in real-time. Hence, the US Debt Crisis is real. Around 5% have over five loans against their names. Hence, people must learn more about easy and scientific debt payoff methods like the Debt Snowball Method.

With this method, you first pay off the smallest debts in full. After that, you roll the amount towards that bill to clear off the next smallest debt. In the same way, the amount you pay for your focus debt keeps increasing, much like the rolling of snowballs down a gradual hill.

What do our Experts say?

Our experts claim that you could save more with other methods. There re schemes like debt relief that help you to ward off a part of your debt or the whole of it, based on the case. So, why is the Debt Snowball Method better?

I won’t say it is better. However, there is an advantage that none other offers. It helps you to clear off all oof your debts without settling any of them. When you settle debts, it leaves a trace on your credit report. All Debt settlement companies report to the credit bureaus duly. As a result, your future loan credibility suffers. However, there is no chance of the same when you clear all pf your dues.

Hence, we will take on the Debt Snowball Method in detail.

Main Takeaways:

• The Debt Snowball Method is a debt clearance method that keeps your pocket pinch to the lowest
• It keeps you motivated as you see your debts being cleared one after the other.
• However, you may save more if you follow other strategies instead of it.

How does the Debt Snowball Method work?

The Debt Snowball Method is one of the most acclaimed debt reduction strategies. Remember, it is not a debt settlement strategy. So, the method does not meddle with your credit report or involve the credit bureau.

After you clear the smallest loan, your next smallest loan becomes your focus debt. There is just one more change. You keep paying the same amount as that for the smallest loan. Meanwhile, yo have to add a paltry more. It will help you to get out of debt fast.

Here is a step-by-step guide to how the Debt Snowball Method works:

1. Make a list of your pending debts in ascending order.

2. The first requires immediate attention.

3. You will clear full EMIs for the smallest debt. For the rest, you will keep paying the minimum dues.

4.. Take what you were paying already and add a small amount. It is the legit monthly payment to clear off your next smallest debt.

5. Repeat the same method until all your debts are cleared

Our experts take on how the Debt Snowball Method works.

A reader asked me- As I take on the next smaller debt, I would also progress towards the more considerable debts. So, how would I manage those when the time comes? I understand the concern. If you could pay off the debts already, you would not have needed any strategy in the first place.

But here’s the catch. As you clear off one debt after another, you clear a lump sum toward the small debts. Imagine you had three debts. The first one summed to $10,000. The second being $30,000 and the third being $50,000. Once you clear off the debt of $10,000, you have a leverage of$1500, which you were using to pay off the loan EMI every month.

In the same way, when you clear the other one, you are left with the $50,000 loan only. However, the EMI would not be proportionately higher. Maybe $2000 to $2500, at best. Meanwhile, you don’t hve to pay anything for the rest of the debts now. Hence, you can save that amount or use the same to pay off the existing debts.

How to Boost the Debt Snowball Method?

There are some elementary considerations after choosing the Debt Snowball Method. You cannot unthinkingly follow the grammar of the method. You cannot ignore opportunities to find lesser payback rates for your more significant and pressing loans. Remember, the interest keeps spiking as you keep paying the minimum dues on your loans.

A crucial option might be Debt consolidation in the US. This method compiles all of your existing debts into a single loan. Consequently, you get two leverages. First, your interest rates become much lower. You may be paying 12 to 15% interest on a loan. When consolidated the interest rate is bound to come down.

Secondly, the late fees and penalties you paid for the missed payments would not accrue any further. Hence, you can save a good deal through this method.

You may also be able to transfer your credit card payback balance to a lower-rate card that has a 0% introductory APR. Any of the methods could help you.

Comparing the Debt Snowball Method and Avalanche Method

The Debt Snowball Method simply needs you to focus on the smallest debt in the first place. Then, you can focus on the next smallest one. Once a loan is clear, you can roll the patent sum over to clear the following smallest sum.

In the same way, the process snowballs until all your debts are clear.

However, the Avalanche method is a contrasting one. Here, the plan is to clear that loan that charges the highest interest in the first place. Like the former method, you clear off the highest-interest loan at first and then roll over the amount to pay the loan with the second-highest interest.

The catch is to reduce how much you need to pay overtime. As you keep clearing the most considerable dues, you will eventually have to pay less for the smaller debts.

What’s the difference, and which is better?

You can save money using the avalanche method. However, the time needed to pay off a significant debt with a high interest rate can demotivate you. Hence, you will find it challenging to stick to the plan. In comparison, clearing the smaller debts at first can be more rewarding.

Perfecting your debt clearance strategy

If you could have handled your loans well, you wouldn’t have needed the Debt Snowball Method in the first place. So, you must follow the same tricks so that you don’t fail this time again.

1. Create an emergency fund

Build your safety net. Before you begin the Debt Snowball Method, create this contingent fund. It is good that you intend to become debt-free. However, you can’t ignore the contingent costs that will come your way. Some of them are housing costs, medical bills, etc.

2. Stay updated with all the bills you must pay

Don’t start the Debt Snowball Method if you are late on payments. Most importantly, this will complicate and make your debt situation worse.

In a state of late payments, you are paying added fines. The piled-up fines may disrupt the calculator of the small and big dues. One of my readers commented- “My principle is now smaller than my interest amount. What should I do?”

I suggested she immediately go for the debt settlement or consolidation strategy. However, no financial expert will tell such a borrower to start the Debt Snowball Method.

3. Keep track of all of your spending

Once you enter the Debt Snowball Method domain, you must be extra attentive. I’d suggest- stick to a clean and rigid budget. Don’t overspend and try to curtail your entertainment, transport, and misc. costs.

Meanwhile, see how your credit score changes as you clear one debt after the other. When you clear a debt in full, it has a significant positive effect on your credit score. It might be the smallest or the most essential debt in your repertoire.

The effect of clearing off a debt is the same.

Is the Debt Snowball Method the Right Option for You?

Often, experts say that the Debt Snowball Method is counterproductive. They feel that clearing the high debt and high-interest loans at first can clear a lot of expendable capital. On this accord, the avalanche strategy seems a better option. However, I feel the Debt Snowball Method is better, even if it may seem less efficient.

Most people prefer front-loading their payoff journey with neat victories. The Debt Snowball Method is the best for them. However, borrowers must evaluate the time that it would take. If your credit cards and unsecured loans take more than 5 years to clear, promptly go for the debt relief option.

Call to Action

Often, readers don’t have avid debt management knowledge. I suggest they reach out to our financial experts through the comment section of our page. We will tell you just what you need.

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