Summary:

  • The debt snowball approach centers on paying off your smallest debt balance first and then building momentum by paying off your next smallest balance until paid off.
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  • Each time you pay off a balance, you use the savings from the minimum payment to put additional funds toward your next smallest balance. 
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  • Coaches love this strategy because it provides encouragement every time you pay a card off.
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  • While you can manually use a spreadsheet to track your debt snowball, Budge automates this process making it effortless. 

The debt snowball method is simple and effective. Here’s how it works. 

  1. The debt snowball method involves simply paying off your smallest debt entirely and then applying the freed-up minimum payment from the paid debt towards your next smallest balance.

  2. As you pay off each balance, the amount of extra money you have to pay off the next balance gets larger and larger like a snowball rolling down a hill.

How to tell if the debt snowball is for you. 

  1. If you want quick dopamine hits to keep you motivated. By focusing on paying off the smallest debts first, people experience quick victories. This creates a sense of accomplishment and momentum.

  2. If you want to create more cash flow quickly. Every time you pay off your debt, you are freeing up more money. Who doesn’t like having more money in their pocket?

  3. If you don’t want to open a consolidation loan. Many people don’t want to pay debt with more debt. More on that later! 

It’s important to have a plan not to get into more debt. 

If you snowball your debt, but build more debt in the process, this method won’t work. Here are some tips for staying out of debt when you snowball:

  • Create a budget & stick to it. 
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  • Build an emergency fund so that when life happens, you don’t have to use a credit card or loan. 
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  • Identify non-essential expenses and find ways to cut back.
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  • Switch spending to a debit card. Try spending on a debit card to stay on budget and reduce your chances of overspending.

Snowball the easy way with Budge. 

Up until recently, tracking and managing your debt snowball involved managing a spreadsheet. Budge’s debt automation features make executing the debt snowball easy.

Old Way (Spreadsheets) Budge Way
Login to all of your accounts. Login to Budge
Copy all of your balances and interest rates into a spreadsheet. Automatically pull all your cards and balances into Budge’s debt dashboard.
Pay extra money towards your lowest balance card every month. Budge uses your extra money to pay your lowest balance card every month.
Update your spreadsheet with your new balances every month. Budge automatically brings your balances into your debt dashboard

What other options should I consider?

The debt snowball is recommended by financial coaches worldwide but if you are looking for other options, consider:

  • A debt consolidation loan or a balance transfer card if you want to reduce how much interest you are going to pay.

  • The debt avalanche is the debt snowball’s sibling. Instead of targeting the lowest balance, it targets the highest interest balances first.