A Proof That Debt Snowball Works!
Perhaps, you have done some reading on how debt snowball works when knocking down your debt; or on how the avalanche method can eliminate your most expensive debts. In this article, we will take a look at the study conducted by the Kellogg School of Management, which distinguishes which method actually works better.
The Study
Researchers gathered the data with how 6,000 individuals were able to settle and full pay their credit card debt through a debt settlement company. After reviewing how each of them became debt-free, they discovered that the people who consider paying the debts with the most interest rates via the snowball method were able to succeed in becoming debt-free.
The Conclusion
They revealed as a conclusion to their study that “Closing debt accounts – Independent of the dollar balances of the closed accounts – predicted successful debt elimination at any point in the debt settlement program.”
The Key
The simple question is how would people eventually be free from debt when they are paying their loans with the highest interest rates. The answer lies in the success and strategy that is associated with closing debts. Consider for instance, two individuals with the same amount of debt which is $20,000. One carries a single loan with interst rates of about 3%. The second holds $2,000 debt, $8,000 on the other, and a $10,000 on his third debt. Let’s say, despite the high-interest rates, this individual focuses on his first debt, which amounts to $2,000. Both individuals pay back $2,000 simultaneously. Putting this example, the first individual has an outstanding balance amounting to $18,000. It’s a good piece, but both have a long journey towards knocking their debts. The second individual, however, was able to eliminate the first debt amounting to $2,000. Now when the second person looks at their position all they perceive is the debt costing $8,000 debt and $10,000. The $8,000 loan, may take a little longer to pay but considering they have paid a portion of it will determine which one will sustain along the way and which among these two will drawback.
In this manner, it speaks a lot of your patience and endurance. This means that if you are not patient in nature, you might feel exhausted along the way. Some people may find it fulfilling each time they pay off debt and seeing short progress will keep their motivation on fire, while some others might not have much patience and may even feel agitated as they haven’t seen any progress towards their debt payments.
In this case, it would be helpful if you keep track of how much you’ve paid and here you stand in eliminating your debt. This will keep you on fire that somehow you’ve done such a bug leap each time you out an extra dollar on your debt payments.
Moreover, if you’re someone who wants to save in terms of interest payment, picking your smallest debt, which usually holds high interest rates and throwing more than the minimum payment you can afford will lessen the duration of your indebtedness.
