Debt Snowball MethodMay 18, 2018
Updated November 12, 2021
When you took out loans for your education, you were likely laser-focused, hurdling goal after goal to finish the race as quickly as possible and get that diploma. You may have even used that momentum to land your first job out of school. When the vicious cycle of bills begins to eat away at your paycheck, you may feel like your financial life is freezing in time. Now buried in student loan debt, all you can move is your eyes, and all you can see is an avalanche of credit card debt, car payments, and maybe even a mortgage, coming straight for you.
Debt Snowball Method
While researching the quickest way to dig yourself out, you may have heard of the ‘debt snowball method’ as prescribed by financial expert Dave Ramsey. While other methods advise tackling your biggest debts with the highest interest rates first, the debt snowball method is that you pay down your smallest debt first and use that momentum to carry into the next.
The makings of a perfect snowball
As eager as you may be to start chipping away at even your smallest debt, it should be noted that having a rigorous monthly budget with a comfortable emergency fund is the cornerstone of Ramsey’s entire philosophy. Without them, the smallest bump in the road to repayment can cause serious setbacks.
After you assign every dollar in your budget and gather an emergency fund buffer around your finances, list your debts from smallest to largest. Don’t pay any mind to interest rates or due dates; the only figure that’s important right now is the total loan balance on each account.
Staging a successful siege
Next, to avoid racking up more debt, make minimum payments on all your debts except the smallest. Then use every spare dollar in your budget to pay as much as possible on your smallest debt. The more you can pay at the beginning, the bigger your snowball will become. The psychological victory from having a few quick wins will boost your confidence and help you gain momentum.
By the time you start making payments on the bigger debts, you have much more cash freed up from the absence of your smaller debts. At this point, the momentum you have will encourage you to stick with the changes in your financial behavior. Those changes have the power to get you out of debt and keep you from falling back into it.
Even though it may cost more money than paying off your highest interest rate debts first, the snowball method allows you to make short (but immediate) strides towards a debt-free life. As tempting as it may be to kick down the door and come in guns blazing, you can really set yourself up for a much more successful siege with a little bit of planning and a whole lot of discipline.
Refinancing your snowball
Another great way to position yourself for success is to look into refinancing your student loan debt. Like the debt snowball method, the proper planning and smarter borrowing associated with refinancing enable you to proceed through the repayment process in the most efficient manner. Currently, student interest rates are low, and consolidating your multiple student loans into a single loan with a fixed rate secures the notion that you’ve done everything you can do to simplify that particular part of your finances.
Our customers have reported saving an average of $286 every month and should see an average of $22,500 in total savings after refinancing their student loans with Education Loan Finance.** See how much you could save with our student loan refinancing calculator and consider the impact of applying those savings to your other forms of debt.* With proper planning and smarter borrowing, you can avert the threat of avalanche and most efficiently summit the mountain range of your financial goals.