Often termed the “Debt Snowball,” this method of paying off debt is effective and easy. The concept can be varied to accommodate high interest credit cards, but traditionally this term refers to the process of systematically organizing credit card debt, and then paying off that debt beginning with the smallest balance.
More specifically, to start the process you organize your debts from the smallest debt (or debt with the highest interest) to the largest. Then set aside the amount of money you can afford to spend on repaying the debt each month. Once you have subtracted the minimum payments on each card from the amount you can afford each month, use the extra money in addition to the minimum payment to pay of the smallest debt (or highest interest debt). After the smallest debt is paid off, use that entire amount that was going to the smallest debt to pay off the next debt. Then continue the process until each debt is paid off.
This “snowball” approach allows the individual to systematically eliminate debt one debt at a time. In addition, the consumer gets the reward of seeing an entire debt eliminated…that type of reinforcement encourages the positive debt repayment habits. ■
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