What is the Snowball Method of Paying Down Debt?
In one of the cases reported by the Bank of Canada, proclaimed as Canada’s Economy and Household Debt: How Big Is the Problem? it implies a much concern about Canada’s household debt. It shows that Canada’s household debt has been gradually increasing for 30 years. The Bank of Canada reveals that Canadians have debts over $2 trillion. Approximately 33% of which is mortgage debt, but the rest constitutes debts including car loans, credit card debt, lines of credit and student loans.
In terms of paying off debt, starting to initiate the plan can be the most challenging part. Similar to when you’re starting up a small business, it takes efficient planning. This is true even amidst a financial windfall. However, once you’ve set everything in place, everything will be just fine for as long as you stick to your plan. A similar idea can be taken into consideration when paying down your debt. Most of us may find it hard where to start and how to start, especially when you have acquired all sorts of debts.
If you’re someone who’s in a struggle to pay down your debt, an immediate result through a Snowball Method might keep you motivated. This method encourages the approach of paying off your debt from your smallest debt down to the largest. Unlike in Avalanche Method, the snowball method provides an instant sense of fulfillment. Though it may not be cheap to pay off your debt, this can be the most feasible means to stay motivated.
Getting Started with the Snowball Method
If you choose to pay off your debt through the snowball method, you can start listing all your debts starting from the smallest down to the largest. The first in your list might be overdue bills on utilities, an amount you owed from a line of credit or your payday loans. In most cases, it can’t be your mortgage. Let’s take a look at how you can go on with your list:
Listing Down Your Smallest Debt to the Largest
- Pay more than the minimum amount on the first debt on your list while paying the minimum for the rest of your debts.
- You have to pay as much as you can afford on your smallest debt
- Repeat the idea or steps until you have paid all the debts listed.
Below is an example of the usual debt that may be in your list:
- Overdue on energy costs = $98
- Unprotected line of credit = $230
- Credit card outstanding balance = $340
- Money owed from a friend for car repair = $ 870
- Student loans = $3675
- Car loan = $8340
Having these lists, you can start paying more than the minimum for your home heating costs or better pay it in full if you can afford it while paying the minimum for the rest of the debt. Once you have paid the first debt, you can move to the second the same idea of paying it as much as you can afford, which should be more than than the monthly minimum. After this, you can move on to the third and so on while following the same idea.
Why the Snowball Method Works
The same idea as you crush out each item on your to-do list, it gives a gratifying feeling that you have fulfilled something. In most cases, this fires up your motivation and drive towards knocking down each item on your list. It is a factor that triggers motivation for someone who has been burdened by their debt. Besides, for a person who has been in debt, will feel a sense of accomplishment. This feeling will initiate the likelihood to continue eliminating each debt one at a time.
Thus, this is a great strategy for a person to defeat setbacks and stay focus on goals. It draws into the same passion we sensed when completing that to-do list. By eliminating each debt or loans off the list quickly, we remain motivated to continually pay down each debt.
Who Can Best Benefit From A Snowball Method?
If you’re someone who isn’t patient, or someone who wants to see progress in everything that you do, following the idea of the snowball method would be favorable for you. While if you’re more inclined towards saving more money, the avalanche method is a more suitable way to pay down your debt. However, whether what method you chose, all will depend on your willingness and desire to become debt-free. Paying down debts takes a lot of discipline and strategic planning. The key lies in your attitude and drive. If you are in doubt with how to deal with your financial strife, you can seek help by filling out the DEBT RELIEF FORM on this page.
CONSUMER PROPOSAL EXAMPLE
Example Unsecured Debts
|2||Credit card 1||$6,812|
Your Monthly Repayments Would Be
a Consumer proposal $748
(total contractual repayments)
a Consumer proposal $295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances.