There are a number of experts in financial matters, who claim the debt snowball solution to be effective and efficient. To be frank the method works, though for sure it’s far from a one-size-fits-all solution. As many men as many financial goals, requirements, standards and ambitious we have in our life. So there is no chance to find the magic strategy which will suit everybody. People are individual in their approach of dealing with debts.
What is a debt snowball?
The method presupposes the creation of a budget sheet, where all income and expenses included. They are arranged in a special way: debts are put so that the accounts with the lowest balance are on top and the ones with bigger balance size are listed below. The account, where the debt is the most will be at the bottom. Different interest rates are ignored in the method. Proceeding with the debt snowball we should say that it presupposes minimum payments to all your accounts every month but for the one with the lowest balance. If you happen to have extra means you invest them in paying your smallest debt until it has reached zero.
As soon as the smallest debt is covered proceed with the next in the line, do not forget to use the total monthly amount paid for previous debt towards this one and to provide minimum payments for the rest.
The process continues until all the accounts are paid off and all the funds are used to get rid of the debt with the highest balance. The name of the method was created due to the principle of payments done, as they grow large, just like a snowball. Starting to eliminate your debt from the smallest you get the psychological pattern of achieving the goal easilyanchored.
In spite of the fact that the debt snowball method seems to be simple and efficient there are aspects, which make it doubtful for some borrowers.
Is debt snowballing a good Idea?
The main concern many of debtors mention about the method is the fact that interest rate is not taken into consideration while the pre-selection of debts to be paid off in the first term is made. Many of the borrowers, including those turning to Sterling Store – online company in UK – would prefer to start with paying back the loans with the highest interest rates; it may give you the opportunity to get rid of your debts in a shorter time. Paying the accounts with higher interests you will be able to save on various fees entailed by them.
It’s only up to you to decide whether the solution will be useful for you or not, we can’t but mention that a great many of people choose the pattern due to its psychological benefit. For a certain category of debtors it works better than calculations. When people see quick results in getting rid of one debt after another, they receive pretty nice motivation to keep to the chosen way of eliminating debts. If you choose to start from the higher interests accounts it will take you more time to see the result.
The choice of debt payment plan
To find out if the snowball solution suits you the best is to create a budget spreadsheet of your own. Having summarized your income and expenses information, make a separate list according to the snowball strategy. Analyze what you’ve got and if the result is not very satisfying, make the third list, ranging debts according to the interests’ rates. Finally choose the best for your personal style of paying the debts off.