By Evans | Jun 26, 2024
Are you tired of the crippling debt stealing your peace? Are you tired of constantly wracking your brain, looking for ways to pay off your debts? Several things can suck the joy out of every occasion, debt being one of them. But I am here to help you become debt-free. How, you ask? Enter the debt snowball method.
What is the Debt Snowball Method?
The debt snowball method is a debt repayment strategy that aims at helping you pay off your debts, from the smallest to the largest. This strategy allows you to gain momentum as you pay off each debt, knowing that a debt-free life is within sight.
How to become debt-free using the debt snowball method
List all your debts from smallest to largest
The first thing to do under this strategy is to gather information regarding all your debts. This information includes the balance remaining to be paid off, minimum payments, and interest rates. Once you have all this information, arrange the debts from the smallest to the largest, regardless of the interest rates. This will help give you direction when you begin paying off your debts.
Make minimum payments on all debts
Implementing the debt snowball method does not mean that you abandon making the minimum payments as this can only make your debt payment process even more challenging. Failure to make minimum payments will attract penalties and additional interest, which you don’t want.
Use extra payments for the smallest debt
Once minimum payments are made, it is now time to allocate any extra money you have towards the smallest debt. Extra money can come from budgeting, side hustle, or cutting down on expenses. Ensure that every time you get additional funds, you use the funds to pay off your smallest debt until it is fully paid.
Celebrate
Debt payment can be such a tough experience that needs to be celebrated once done. Do not wait until you have paid off all the debts for you to celebrate. Celebrating when each debt (regardless of how small it is) is paid will keep you motivated to go on until you are debt-free.
Move on to the next small debt
Once the smallest debt is paid, you need to now take the money that you were paying on the smallest debt, and add it to the minimum payment of the next debt in line. Doing this will help to increase your payment power on the next debt.
Repeat
This method is called the snowball method since it means that each time you pay off a debt, you roll over payments to the next smallest debt and the payment amount continues to grow like an actual snowball. This allows you to gain momentum as you pay off each debt.
Be consistent
The debt snowball method cannot work if you do not stay consistent. Paying off one debt should motivate you to pay the next debt in line. However, if you choose to pause and use the amount you were using to pay off the smallest debt for other things, then it might be a little harder for you to get back on track. Since with this strategy, you start paying off the smallest to the largest one, every time you pause, it gets a bit harder to move on since the payments needed to be made keep getting slightly bigger.
To ensure consistency, review the progress you are making regularly, and adjust your budget as needed to ensure that you have enough additional funds for the next debt. While using the debt snowball method, avoid accumulating a new debt (unless it is absolutely necessary) as this will only make the debt payment process more difficult for you.
Example of debt repayment using snowball method
Assume you have four loans:
- Sacco loan: Ksh 500,000, interest rate 13% Monthly payment of 20000
- Car loan: Ksh 800, 000, interest rate 14% monthly payment of 20,000
- Helb loan: Ksh 240, 000, interest rate 4% Monthly Payment of 15,000
- Mshwari loan: Ksh 15,000, interest rate: 9% monthly payment of 2,000
The debt snowball method dictates that you list the debts from the smallest to the largest, irrespective of the interest rate. If you allocate Ksh 100,000 in your budget towards loan repayments, you should pay :
Helb loan: Ksh 15,000
Sacco loan: Ksh 25,000
Car loan: Ksh 50,000
That totals Ksh 90,000 so you will use the remaining balance to offset the smallest loan. This means you will pay the Mshwari loan Ksh 10,000 instead of Ksh 2,000
Once the Mshwari Loan is completed, you can now move the extra Ksh 10,000 to the next small loan which is Helb Loan (You will start paying Helb loan Ksh 25,000) until completed. Repeat the process until you pay all your loans.
Tips to succeed using the debt snowball method
Budget
When it comes to debt repayment, budgeting is your friend. Create a budget that will help maximize the amount you can use to pay off the debts and stick to it. Remember that a budget only works if you stick to it.
Have an emergency fund
The reason most people continue accumulating more debts is because unexpected expenses find them with no extra money, forcing them to get into debt to cover such expenses. While using this method, make sure that you have an emergency fund that will help you to cover unexpected expenses without getting into the very debt you are trying to get out of.
Discipline
The debt snowball method cannot work without you being disciplined towards the repayment process, your spending, as well as avoidance of taking a new debt.
Get support
The debt payment process is not a joke. It can leave you drained and demotivated, especially if you do not get the needed support. For instance, it is quite difficult for you to focus on paying off debt when your loved ones keep tempting you to use that money for something else, or even to take a new debt to cover the expenses of that spontaneous trip that you all decided to take. You need to involve your family and friends in this process, so that they can motivate you when you find it difficult to go on, instead of being the very reason why you are demotivated to pay off your debts. You can also seek support from a financial advisor to stay on track whenever needed.
Final thought
Sleep hits differently when you know that all your debts are fully paid. Food tastes sweeter and the air fresher. Implement the debt snowball method now and watch as financial freedom becomes a reality for you. The journey towards debt payment is not easy. It might mean tightening your belt or even taking up different side hustles. However, the rewards are worth it. The debt snowball method not only helps ensure that you have zero balances, but it also gives you back the power to make decisions concerning your future without the burden of the past weighing down on you. If you find yourself drowning in debts and do not know where to start, contact us and we will walk you through this debt snowball method, ensuring that you not only get off of it but that you never again have to find yourself in such a situation again.
