Can Debt Snowball End Your Financial Blues

By Marc Brown, Debt.com Financial Fitness Trainer

Consumer spending in American has been unusually high in the recent years. Quite naturally, millions of people in the U.S are drowning in credit card debt. As per data from the Federal Reserve, the total consumer debt in America is $2.40 trillion. A scary figure, isn’t it? High unemployment rate owing to the recent financial depression have made things worse for the debtors. Under the circumstance, a lot of people are opting for debt consolidationand debt settlement programs to get out of debt.

You should understand that debt relief programs are essentially for people who are in serious monetary trouble. For people with manageable debt, there are better options like debt reduction strategies. The most popular debt reduction strategy is debt snowball. Popularized by Dave Ramsey, a financial guru and renowned author, debt snowball has been embraced by a huge number of people who are struggling to come out of debt. Can debt snowball get you out of monetary trouble? Let’s try to find out.

How does debt snowball work?

Debt snowball involves the following steps:

• Firstly, you would need to list all your debts according to their size.
• Secondly, throw as much money as possible towards the smallest debt.
• Thirdly, make minimum payments on all other debts.
• Once you successfully pay off the smallest debt, repeat the process by attacking the second smallest debt.

This process is called debt snowball because the payments that you can make towards the debts keep on getting bigger as the number of debts decreases over time. When you are left with the bigger debts, you can afford to make large payments and get out of debt fast.

What are the advantages of debt snowball?

The debt snowball method will motivate you to be debt free. You would be able to pay off the smaller debts with relative ease if you follow debt snowball method. These quick wins will encourage you to pay off the rest of the debts. Quite clearly, debt snowball is for people who like to celebrate their success.

Debt snowball is an organized method to solve your debt worries. This is a logical approach to solve debt problems and is particularly effective in eliminating revolving debt like credit card debt.

With debt snowball, your first few debts disappear quite fast and others follow them as time passes. This can be a major advantage in case of an emergency like job loss. This is because you have to make payments for a reduced number of debts.

Should you follow the debt snowball method?

Debt snowball is not without its critics. Many financial analysts point out that this method will eventually cost a debtor more money than the highest-interest-first or debt avalanche method. With debt avalanche, you focus on eliminating debts according to their rate of interest. This method is certainly cheaper and can possibly get you out of debt faster.

Debt snowball does not emphasize on the need to eliminate secured debts first. This can be an issue as you may face foreclosure if you neglect secure debts.

Nonetheless, debt snowball has worked for a lot of people and it might very well work for you too. However, for any debt reduction method to be effective, you should be willing to change your lifestyle radically. So are you really disgusted with debt and prepared to make sacrifices? If yes, then debt snowball can help you to find a way out of the debt maze.