The debt snowball method is one of several strategies you can use to reduce and eventually eliminate your debt. It works by focusing on paying off the smallest amount of debt first, then the next highest amount, and so on until you reach the maximum amount of debt. This method was popularized by personal finance guru, Dave Ramsey.
How does the snowball Method work?
This method creates a snowball effect, meaning that the step-by-step debt payoffs build on each other and accelerate
This is similar to when a snowball rolls downhill, gathering speed and accumulating more and more snow. Whether it’s snow or debt reduction, this effect delivers momentum. And, when it comes to your debts, the hope is that this momentum will increasingly boost your motivation by supplying a series of small victories.
How to Get Your Debt Snowball Rolling
1. List all of your outstanding loans
2. Arrange the list from the smallest outstanding balance to the largest outstanding balance
3. Tackle the smallest debt first while also making at least the minimum monthly payments on all your debts. Then put any extra money you come up with for debt repayment toward the smallest debt.
For example, if the smallest debt comes with a minimum payment of 8000ksh but you have found an extra 500ksh in your debt reduction budget, you will add the two which gives you a total of 13000ksh for the smallest debt.
4. Keep the snowball rolling – continue making payments higher than the minimum for the smallest until it’s zero then move to the next least debt till you clear all debt.
Tips on how to accelerate your debt snowball
- Create a budget – if you are new to budgeting learn how to make one by reading our article on 4 financial habits you should cultivate.
- Establish an emergency fund – An emergency fund is a total of your expenditure for a minimum of 3 months. Having an emergency fund is one good way of avoiding and reducing the chances of taking a loan.
- Sell things that are not in use – Things you don’t use such as electricals, furniture can kickstart you in paying your debt
- Start a side hustle – analyze your interests and your hobbies. Google and YouTube is your friend. Research how you can turn your interests into a business.
Bottom Line
If you are one person who loves small victories then this method will work perfectly for you. Let us know what you think in the comment box below. Feel free to contact us at 07110892929 or email us at [email protected]
