{"id":519,"date":"2006-09-28T09:11:41","date_gmt":"2006-09-28T16:11:41","guid":{"rendered":"http:\/\/getrichslowly.org\/blog\/2006\/09\/28\/in-praise-of-the-debt-snowball\/"},"modified":"2023-09-24T09:37:08","modified_gmt":"2023-09-24T15:37:08","slug":"in-praise-of-the-debt-snowball","status":"publish","type":"post","link":"https:\/\/www.getrichslowly.org\/in-praise-of-the-debt-snowball\/","title":{"rendered":"In praise of the debt snowball"},"content":{"rendered":"

During my twenties, I accumulated nearly $25,000 in consumer debt. I had a spending problem. With time, I was able to get my spending under control (mostly), but I still owned overwhelming debt. How could I get rid of it?<\/p>\n

The personal finance books all suggested the same approach:<\/p>\n

    \n
  1. Order your debts from highest interest rate to lowest interest rate.<\/li>\n
  2. Designate a certain amount of money to pay toward debts each month.<\/li>\n
  3. Pay the minimum payment on all debts except the one with the highest interest rate.<\/li>\n
  4. Throw every<\/i> other penny at the debt with the highest interest rate.<\/li>\n
  5. When that debt is gone, do not<\/b> alter the monthly amount used to pay debts, but throw all you can at the debt with the next-highest interest rate.<\/li>\n<\/ol>\n

    This made perfect sense. By doing this, I would be paying the minimum amount in interest over the long term. The trouble was, my highest-interest rate debt was also my debt with the biggest balance (a fully-maxed $12,000 credit card at 19.8% interest). I’d plug away at this debt for several months at a time, but then give up because it felt like I was never getting anywhere.<\/p>\n

    This happened over and over. I’d start and fail. Start and fail. Then I read about the Debt Snowball method in Dave Ramsey’s The Total Money Makeover<\/em><\/a>.<\/p>\n

    \"Snowball<\/a><\/p>\n

    How the Debt Snowball Works<\/h2>\n

    The Debt Snowball method is similar to the traditional approach except<\/em> that instead of attacking high-interest rate debts first, you attack low-balance debts first. Why? Because you’ll get the psychological lift of pinging debts off in rapid succession<\/b>. And if you’re like me, this makes all the difference. The Debt Snowball approach is:<\/p>\n

      \n
    1. Order your debts from lowest balance to highest balance.<\/li>\n
    2. Designate a certain amount of money to pay toward debts each month.<\/li>\n
    3. Pay the minimum payment on all debts except the one with the lowest balance.<\/li>\n
    4. Throw every<\/i> other penny at the debt with the lowest balance.<\/li>\n
    5. When that debt is gone, do not<\/b> alter the monthly amount used to pay debts, but throw all you can at the debt with the next-lowest balance.<\/li>\n<\/ol>\n

      (For more on this, including some actual figures, see my entry on two approaches to debt elimination<\/a>.)<\/p>\n

      When I read about the Debt Snowball method, I was skeptical. I knew it would cost me more in the long run, at least on paper. But I figured I had nothing to lose. I tried it. In four months<\/em> I’d paid off most of my debts.<\/strong> I was shocked. I’d been trying and failing for years<\/em>, and now I was able to make a huge dent in just months? It was all because I had changed my approach just slightly.<\/p>\n

      Why the Debt Snowball Works<\/h2>\n

      Humans are complex psychological creatures. They’re not adding machines. Many of us know what we ought<\/i> to do but find it difficult to actually make the best choices.<\/strong> If we were adding machines, we wouldn’t accumulate $20,000 in consumer debt in the first place! It’s misguided to tell somebody so deep in debt that they must<\/em> follow the repayment plan that minimizes interest payments. The important thing to do is to set up a system of positive reinforcement, and that’s exactly what the Debt Snowball method does.<\/p>\n

      Which method should you choose? Do what works for you<\/a>. The first method can save you money in the long-run. But if you’ve tried it and failed, give the Debt Snowball method a shot. It might be the answer you’re searching for!<\/p>\n","protected":false},"excerpt":{"rendered":"

      During my twenties, I accumulated nearly $25,000 in consumer debt. I had a spending problem. With time, I was able to get my spending under control (mostly), but I still owned overwhelming debt. How could I get rid of it?<\/p>\n

      The personal finance books all suggested the same approach:<\/p>\n

        \n
      1. Order your debts from highest interest rate to lowest interest rate.<\/li>\n
      2. Designate a certain amount of money to pay toward debts each month.<\/li>\n
      3. Pay the minimum payment on all debts except the one with the highest interest rate.<\/li>\n
      4. Throw every<\/i> other penny at the debt with the highest interest rate.<\/li>\n
      5. When that debt is gone, do not<\/b> alter the monthly amount used to pay debts, but throw all you can at the debt with the next-highest interest rate.<\/li>\n<\/ol>\n

        This made perfect sense. By doing this, I would be paying the minimum amount in interest over the long term. The trouble was, my highest-interest rate debt was also my debt with the biggest balance (a fully-maxed $12,000 credit card at 19.8% interest). I’d plug away at this debt for several months at a time, but then give up because it felt like I was never getting anywhere.<\/p>\n","protected":false},"author":3287,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[474],"acf":[],"_links":{"self":[{"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/posts\/519"}],"collection":[{"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/users\/3287"}],"replies":[{"embeddable":true,"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/comments?post=519"}],"version-history":[{"count":0,"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/posts\/519\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/media?parent=519"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/categories?post=519"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}