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Overview of a Debt Snowball
The debt snowball program is a plan for paying down credit card debt. Followers of the debt snowball program attest to the plan’s success. Since cardholders are able to eliminate small debts so quickly, they feel motivated to continue working toward a debt-free lifestyle. While most financial advisors recommend paying off the credit cards with the highest interest rate first, the debt snowball plan works differently.
Consumers who follow the debt snowball plan work to pay off their smallest credit card accounts quickly, and then use the money from those payments to pay the next smallest accounts. As the credit card debts are paid off, the additional money is used to pay extra on the larger accounts until all of the debt is paid off in full. The goal is to gather additional money each month in the same manner a snowball forms – by starting with a little bit of funds and gradually increasing it to a large sum.
The key to being successful with this program is finding out exactly how much credit card debt there is. Before beginning the program, cardholders make a list of all of their credit card accounts and balances, from smallest to largest. Then they evaluate their monthly budget to find out how much extra money they have each month to pay toward their debt. Account holders commit to paying the minimum amount on their larger debts and pay the additional funds toward to their smallest debt.
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Calculating the time it will take to pay off all of the debt is a bit more complex with the debt snowball program than with other debt reduction plans. Since cardholders are paying off their debts according to size rather than interest rate, the amount of interest on larger accounts can be substantial. When evaluating the total payoff time, consumers have to factor in the additional interest their accounts will generate during the time they are using the plan.
There are online resources that consumers can use to develop their personal debt snowball program. Individuals can simply list their credit card accounts in an online calculator and receive a printable debt reduction plan. For those that prefer to use manual resources, there are printable debt snowball worksheets that can help cardholders create their own debt reduction schedule.