Debt Snowball Method

Why the Debt Snowball Method Works

The biggest advantage of this method is the psychological boost it provides.

Paying off small debts fast gives a sense of achievement. This keeps borrowers motivated to pay off larger loans. For instance, clearing a ₹12,000 credit card balance first boosts confidence for the next debt. This approach also makes debt management simpler. Progress is measured by the number of debts paid off, not interest rates. This makes it easier to stay focused than with interest-rate-based methods like the Debt Avalanche Method. Additionally, it improves cash flow over time. Once smaller debts are eliminated, their monthly payment amounts can be redirected to pay off larger balances. For instance, if a borrower has ₹3,000 allocated to a small debt, that amount can now be reallocated toward bigger loans, speeding up repayment.

Challenges of the Debt Snowball Method

One drawback of this method is that it does not prioritize high-interest debt, which can increase total repayment costs. Ignoring a credit card with a 29% Annual Percentage Ratio (APR) while focusing on a lower-interest personal loan could lead to paying more in interest over time. Another limitation is that larger debts take longer to clear, which can prolong overall debt repayment. If a borrower has a ₹70,000 education loan, it may remain unpaid for a long time while smaller debts are cleared first, increasing the risk of a longer debt cycle.

Practical Tips for Managing the Debt Snowball Method Effectively

To get the best results, borrowers should budget carefully. They should set aside ₹9,000 each month for debt repayment. This includes ₹6,000 for minimum payments and ₹3,000 for the smallest balance. This plan helps maintain financial stability while making steady progress. It's also important to avoid new debt. Stopping credit card use and steering clear of unnecessary loans prevents setbacks. These setbacks can slow down progress. Automating payments helps cover minimums on all debts. This way, borrowers avoid late fees and penalties that can delay repayment. Staying motivated is crucial. Celebrating milestones keeps borrowers engaged. For instance, clearing a ₹30,000 personal loan is a big win and boosts commitment to the process.

Final Thoughts

The Debt Snowball Method is ideal for those who struggle with motivation and need quick wins to stay focused on their repayment journey. However, for large debts with high interest rates, being mindful of interest can cut costs. Staying disciplined and automating payments helps. Also, rolling over extra cash to bigger debts can lead to long-term financial freedom in a clear, motivating way.