Debt Management: A Note on Snowball Method

While the process of availing a loan is comparatively easy, paying it off could be a different ball game altogether, especially when managing multiple debts. 

Among the various strategies, snowball is one method an individual can adopt to square off a loan and avoid falling into a debt trap.

The method draws its analogy from a small snowball, which, when rolled on a slope, becomes bigger as it covers the distance. So, a somewhat similar strategy is used in reducing the debt. 

A snowball method entails paying off the smallest loan earlier and working the way up to pay off the larger one. The process continues till an individual’s debt is finally cleared. 

It not only helps pay off the debt but also aids in achieving it with minimal stress. 

To implement this strategy, an individual is required to gather all debt-related information, irrespective of the fact that it is small or big. This is the first and foremost necessity to apply the snowball effect. 

Then, categorise debt with the smallest at the top. Following this, target the smallest debt and repay it in full or to the maximum possible limit.

Move to the next akin smallest debt. After the smallest debt is paid, the immediate focus should shift to the next in line of the smallest debts.

Similarly, pay minimum dues of other debts. However, focusing on the smallest debts does not mean leaving alone other debts. So, paying the minimum dues will keep reducing the debts and safeguard an individual’s credit health.

All this while, put a hold on availing any new loans. The core idea in implementing the snowball strategy is to keep the new loans or dues to zero. In fact, this remains one of the critical steps. In case this step is missed, it will nullify the other critical steps as well. So, building up an emergency fund, health insurance, or liquid investments is more of a necessity to avoid skipping this particular step.

However, consistency is the name of the game. Following the steps mentioned above consistently will eventually aid an individual in achieving zero-debt status. 

While the debt begins to reduce through the implementation of the snowball strategy, the interest tends to pile up on the larger debts. The larger interest means an individual, in reality, ends up paying more interest in the snowball strategy as compared to others.

Moreover, ignoring all the other strategies and repaying the minimum dues is not only delaying the financial objective but also becoming debt-free.

Whatever strategy an individual may adopt, depending on their ease, the core idea is remaining committed.