The internet has had its fill of bad “get yo butt out of crushing debt quick” schemes, this being possibly one of the most bizarre takes of all time.
While there are a heap of self-help books filled with guides and formulas, there actually is a pretty simple method that works way, way better than most. And the good news is that it’s specifically designed for people who are certifiable dummies when it comes to chipping away at that credit card you YOLO’d Bali flights onto last summer. Y’know, pretty much all of us.
A “debt snowball” (also known by the far less el spicy name of the “one-debt-at-a-time method” christ why can’t they just call it the Captain Underpants method or something) works a little something like this: you have a set amount of money you can use per month to pay off debts. So instead of splitting it up, you make the minimum payment on your largest, monster of a debt each month, then pay the minimum + whatever is left over from your stash of cash at the end of the month on your smallest debt.
Once that small debt is paid off, you focus on the next smallest debt, all while maintaining your bare minimum monthly repayments for your big guys.
Like MC Hammer once said, let’s break it down: Let’s say you have four debt accounts, all of varying amounts; a couple of credit cards, a personal loan and an IOU to a friend. If the lowest debt was the IOU, you’d aim to pay that one off first.
Once that’s taken care of, you move on to the second lowest debt; say, one of the credit cards. You’re already paying the minimum on that bad boy, but now you’re chucking the cash you’ve freed up by erasing the IOU onto it as well. We’re throwing debt payments into third gear here, basically. Everything speeds up.
So now you’re paying the minimum on the credit card + all the extra cash you were once throwing at the repayments for the smaller debts, which has now freed up each month. And once you pay off the credit card, the snowball moves to your next debt, then the next, and so on. The end goal is that you’ll eventually be paying down your biggest debt with every cent you used to use for other debts. And then soon enough? Baby, you a debt free SOB.
The benefits are twofold: you get the satisfaction of constant reward for getting rid of your debts sooner. And that satisfaction gives you the psychological encouragement to keep going and get out of debt completely.
Don’t just take our word for it, the Harvard Business School agrees that it’s one of the best methods out there for getting your debt in control.
There is a tradeoff though – by not focusing on the debt with the highest interest rate first, you will more than likely end up paying more interest in the long run. So, much like any method, it may not be for everyone, especially if you have a large debt that’s accruing a lot of interest.
But ultimately, if you’re not paying your debts at all then a bit of extra interest might not be the worst thing in the world for your stress levels.
The debt snowball is a roll of the dice, sure. But then again getting yourself out of the hole is absolutely worth it. And trust me when I say, the day you finally get yourself back down to zero? That is a damn good day.