Many people feel intimidated when it comes to dealing with debt, however, there exist some ways that can really make you debt free in a short period of time. One of the most popular and also effective techniques to eliminate debts is the so-called snowball method, which allows you to pay off larger debts because of the psychological booster associated with paying off smaller debts first. In this how-to guide, we will show you how to pay off debt with a snowball method and illustrate 7 of the fastest methods on how to get out of debt. These pieces of advice will allow you to cope with debts without too much stress, removing the burden of debts and financial obligation from your shoulders.
What is the Snowball Method?
The snowball method is a debt reduction strategy which focus on pain the least amount of debt first without fluctuations in interest rates. Once the smallest debt is paid off, the debt payment is then rolled over to the next smallest debt payment. The formula is similar to that of which a snowball progresses downhill which with time increases in size as its gotten easier to take larger debts with every payoff completed.
What Is the Snowball Debt Repayment Method?
Let’s take a look at how the snowball method works in practice below:
- Create a List of Your Debt:Make a list of all your debts in order of the smallest balance to the largest. Do not consider interest rates at this point and concentrate simply on the amount due.
- Maintain Min Payments:Keep the minimum payments on all your debts apart from the smallest.
- Target the Smallest Debt:Allocate any spare funds in your budget towards the smallest debt in your list. Continue until it has been settled.
- Go to the Next Debt:Remember the amount of repayment you have been making to the smallest debt. This amount will now be your new minimum payment on the second smallest debt. Continue this cycle until no debts remain.
Apart from the time it takes, the snowball method works mainly because of the psychological aspects behind it. The first steps in this method consist mainly of paying off smaller debts owing them being small and much quicker to pay off which boosts the overall motivation to continue on paying off other debts.
7 Fastest Methods to Pay Off Debt
As advised by debt experts, there are alternatives to the snowball debt repayment method for clearing debts which include accelerating the snowball and other strategies to be out of debt in the least possible time.
1.Use the Avalanche Method for Most of the Savings:
The snowball method has to do more with motivation as compared to the avalanche method which helps to pay off higher interest rates first and helps save more in the long run.
In the avalanche approach, debt is organized from highest to lowest interest rates rather than those with the highest balances. All debts are settled at the minimum amount but when extra capital is available it is used to pay off the debt with the highest interest rate. Going forward as each of these debts is paid off, the next highest interest debt is tackled.
While it may take long to see the results of this method, it reduces the interest that one pays in the long run and therefore allows for faster settlement of debts.
Which method is better?
This depends on the individual. People that enjoy quick results to remain motivated may find the snowball approach ideal. On the other hand for people that are more inclined toward saving through reducing the amount of interest incurred, the avalanche approach is more favorable.
2. Consolidate Your Debt:
This is a method that involves taking a loan settlement and combining debts into a single loan with a lower interest rate. This would reduce the number of payments made whilst allowing the individual to spend less in interest payments which makes it easier to pay off debts. Consolidating debt, or combining multiple loans into a single loan, is a common way to manage debt. There are a number of ways to consolidate debt:
- Personal Loan:It involves getting a personal loan with a lower interest rate in order to clear up older debts with higher interest rates.
- Balance Transfer Credit Card: Several credit cards allow customers to transfer balances and offer 0 percent interest on that balance for a certain period of time. In this case, you can transfer your credit card’s debt to a zero balance one and pay it off before time runs out.
- Debt Consolidation Loan:This is similar to balance transfer credit cards, however public institutions might provide the funds to enable the payment of such charges on a lower interest rate.
It reduces the monthly financial loads, but generally one could lose the previously acquired debt afterwards and push them into debt footing even deeper than he or she was at before.
3.Cubic income dilution via auxiliary employment:
There probably are ways over in lowering expenses during the payment of debt, however they are automatic. All strategies towards cost optimizing should be taking with a pinch of salt – there are faster strategies towards cost repayment. You may want to think about a side hustle or part-time job for some extra cash. Some of the popular side businesses are on the lines of:
- Freelancingwhich can either be writing or graphic design or even social media management
- Driving for any of the rideshare services like Uberor Lyft
- Delivering food or groceries using the likes of Instacart or DoorDash
- Selling handmade products or crafts on websites such as Etsy.
- Also, each additional revenue that you make should be channeled towards the debt repayment. Even just a few extra hundred bucks a month can be a game changer in the long run.
4. Limit Non-Essential Expenditures:
Another way to better your debt situation is to decrease the amount you are expending within the month. Review your budget and see which spends can be eliminated or reduced even for a few months to help with debt accumulation.
As a starting point, some suggestions for spending less may include the following:
- Cancel Subscriptions:It is common to subscribe to streaming services, gyms and other monthly memberships that are rarely utilized. Always cancel unused subscriptions. Please ensure that you crosscheck your subscription list.
- Minimize Eating Out:When possible, prepare meals at home instead of eating out. Depending on how frequently you ate out previously, this approach can allow for several hundred dollars to be saved each month.
- Reduce Utility Bills:To accomplish this, It is necessary to lower your summer temperatures, use energy-efficient appliances, and unplug devices that are not in use.
Although it may seem like a time-consuming process, in the end, it will all be worth it. In this case, you pay the price but with the end goal of being debt-free to enjoy life without the constant worry of creditors to attend to.
5.Deploy Found Money:
Using tax money obtained unexpectedly is an effective way of squaring away your debts. If you get a refund paycheck, an unexpected raise or a special gift just for you, don’t even think about spending half or all of it, just pay out your debts. With the windfalls, you can eliminate your recurrent monthly payments and thus save further interest and principal for the remaining months.
It’s understandable that one may want to spend a tax refund or bonus paycheck that they have received on purchases that bring joy, however, self-discipline is key here, and remember the maxim: ‘Pay you first’. Simply applying half of the money you received as a windfall can definitely improve your current situation.
6. Put For Sale Gently Used Items:
Putting things that you no longer use up for sale can be tedious but it definitely has its advantages. Finding goods that can be disposed of as surplus enable one to make ends meet. For instance, go through your drawer and identify items that can readily be cleared, for example some of these:
- Old electronics, i.e., phones, tablets, toys, gaming consoles, etc;
- Fancy dresses that you may never use in the future, including belts, shoes, ties, etc;
- Tables, chairs, cabinets, and TV stands, etc;
- Sporting equipment and paraphernalia.
Such items are best sold through eBay and social media forums such as Facebook or YouTube. Alternatively, many people may opt to sell items at a lawn sale. The profit earned from selling unused possessions should be used to pay off the debts making it easier for the debts to be settled in a shorter time frame.
7. Creditors can adjust the interest rate downwards:
In the event that you are facing difficulties because of debt with high interest, try talking to the creditors about the interest rates and see if they can agree to lower them. Many of the creditors can agree to cut down the rate if you explain the situation to them. When you reduce your rate of interest, you cut the amount that you spend on interest every month and instead channel more money towards paying the principal. This will expedite the process of debt settlement. As for communicating with your current creditors, do it respectfully and explain why it is necessary to lower the rate. Not all creditors will approve the request, but small cuts in rate there are a big difference in terms of times.
How to Stay on Track While Paying Off Debt
One huge impediment to achieving debt payoff is sticking to your debt payoff plan but having the right motivation is extremely important for the target to be met. Here are some pointers to aid in staying on track:
- Set Milestones:Divide your debt repayment process into smaller goals as it will help in making realistic expectations. The best way to encourage oneself to achieve a goal is by celebrating the milestones that you reach.
- Track Your Progress:Make updates to your review on a regular basis and take note of how far along in the process you are in paying back your debt. At times the motivation may come from seeing that the debt amounts have gone lower than the previous month.
- Stay Disciplined:Always make if possible, even if it is very little. It is important that when one is in the process of paying off debt, more debt is not accumulated as it can affect the whole process negatively.
- Reward Yourself (Responsibly):Focus on rewarding yourself with reasonable and affordable things whenever you succeed in reaching a certain target. For instance, you could buy yourself a nice meal after making a certain payment towards the total debt amount.
Snowball Method vs. Avalanche Method: Which is Faster?
Although the method known as the snowball method allows you to ease your way and achieve quick satisfaction by conquering little debts at first, the avalanche strategy may help get rid of debt debt in the end as you are constantly focusing on the debts with the highest interest. Nevertheless, the snowball method is generally the preferable option as it encourages people more and has a higher probability of success. Using both techniques together may often be the best option. For example, you might make use of the snowball method at the start, and once you reach a certain level of financial security, you can switch to the avalanche method.
Conclusion
It is possible to eradicate all debt if a sound plan is executed. The snowball strategy is very basic and effective in the sense that it inspires individuals to pay off the smaller debts first and move on to larger debts over time, while the avalanche method, getting a second job, and eliminating non-essential expenditures are also viable options when trying to repay one’s debt.
You will be on the right track of achieving your goals of financial independence if you follow these 7 fastest methods to pay off debt- snowball your payments, increase income, defend against your creditors & others. It is going to be a challenge that is time consuming but discipline and the will to stay focused to the plan will see you through to the end goal, being free of debt.