Debt Snowball: The Fastest Way Out of the Debt Trap

Anyone who has ever found themselves deep in debt knows the sense of despair that can only be felt while looking up from the shadows of a mountain of debt.

I remember that feeling.  I will never forget that feeling.

Thankfully, I stumbled upon the debt snowball method of eliminating debt, and it proved to be my financial salvation.

One of the reasons so many people get debt in debt and stay that way is because debt has a way of sucking the life out of its victims.

You find yourself on the never-ending hamster wheel of minimum payments that seems to drag on so long you figure you will probably die before that Visa card is ever paid off.

That’s the beauty of the debt snowball method of getting out of debt.  You score some quick wins that keep you motivated.

It’s sort of like dieting.  When you drop those first ten pounds you feel motivated to keep hitting the treadmill and trading Snickers bars for rice cakes.

What is the Debt Snowball?

The debt snowball is a method of paying off debts in order from lowest balance to highest balance.  Consider the following hypothetical debts:

  1. Master-card – $986
  2. Bank of Debt Visa Card – $1,764
  3. His Fancy Car Loan – $5,851
  4. Her Fancy Car Loan – $7,322

Notice the order of the debts is key to a successful debt snowball – smallest balance to largest balance.

We’ll continue to pay minimum payments on the Bank of Debt Visa Card, and his and her Fancy Car loans.  Meanwhile, we’ll send every available dime towards that Master-card debt.

Once the Master-card debt is paid off, take whatever you were sending them plus the minimum payment on the Bank of Debt Visa Card plus any extra dollars you can find.

Have a yard sale.

Sale some old video games on eBay.

Before you know it, you will be making sizable payments to debt #4.  As you strike a debt from the list, cut up that credit card.

Uou do not want to give back your gains by going on a shopping spree with your new found available credit.

So I’ve Completed the Debt Snowball Plan, Now What?

Think twice about closing your credit cards while you are still working the debt snowball.  Closing credit cards can reduce your available credit, harming your debt utilization ratio, or the total amount owed to your total amount available.

If that number climbs above 30%, lenders may see you as an increased risk and raise your interest rate on remaining debts.

Once you’ve completed the debt snowball plan, consider which one or two credit card products to keep open for emergencies, travel expenses, etc.

Avoid credit cards with high annual fees, and high interest rates.

If you think you may have trouble maintaining self control, and your housing situation is stable (meaning you aren’t being held hostage by a FICO score), take a sharp pair of scissors to the cards and close the account.

After all, at this point you are not that concerned with your debt utilization ratio because you don’t plan on taking on new debt.

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