How to Pay off Your Debt With Debt-snowball Method

Nearly every financial adviser always advises that debts should be paid off in a particular order: from highest interest rate to lowest interest rate. While this method makes sense from a mathematical point of view, it makes less sense from a psychological point of view.

Psychologically, 7 outstanding debts "feels" more overwhelming than 2 outstanding debts even if they are at the same total balance. Many people are struggling with debt and have tried on several abortive attempts to eliminate their debt using the highest-to-lowest method, and each time they failed. Why?

Because this payoff plan does, indeed, make the most financial sense if you have the discipline to adhere to it. By paying off the high interest rate debt first, you are minimizing the total you will eventually pay in interest. But this method does not work for everyone.

For many debtors, their highest interest rate debt was also their debt with the highest balance. Psychologically, they felt defeated; they could pay on this debt for months at a time and never seem like making the progress.

Dave Ramsey, the financial expert and the nationally-syndicated talk radio host of The Dave Ramsey Show has introduced "Debt-snowball Method" as the alternative to the highest-to-lowest method in paying off the debt. His method had been recognized to make more sense from a psychological point of view.

How's Debt-snowball Method Work?

The basic steps in the debt snowball are:

• List all debts in ascending order from smallest balance to largest.


• Commit to pay the minimum payment on every debt.


• Determine how much extra can be applied towards the smallest debt.


• Pay the minimum payment plus the extra amount towards that smallest debt until it is paid off.


• Then, add the old minimum payment from the first debt to the extra amount, and apply the new sum to the second smallest debt.


• Repeat until all debts are paid in full.

• $30,000 college loan at 5%


• $10,000 credit card balance at 12%


• $2,000 computer loan at 10%


• $3,000 car loan at 4%

1. $10,000 credit card balance at 12%


2. $2,000 computer loan at 10%


3. $30,000 college loan at 5%


4. $3,000 car loan at 4%

1. $2,000 computer loan at 10%


2. $3,000 car loan at 4%


3. $10,000 credit card balance at 12%


4. $30,000 college loan at 5%

Cornie Herring is the Author from StudyKiosk.com. "StudyKiosk-Credit Basics" is an informational website on credit basics and debt consolidation. To see recommended, credible lenders and loan service companies, visit: Recommended Bad Credit Debt Consolidation Services and Lenders

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