How to get out of debt fast using the Snowball Method
Having debt can feel like carrying a backpack full of rocks. There are many mathematical strategies to pay them off, but today we will talk about the most effective one on a psychological level: The Snowball Method.
What is the Snowball Method?
Popularized by personal finance experts, this method temporarily ignores interest rates and focuses on human behavior. The premise is simple: pay off your debts from smallest to largest.
How to apply it in 4 steps
- List all your debts: Order them from smallest to largest total balance, regardless of the interest rate (credit cards, loans from friends, car loan).
- Pay the minimum on all of them: Except for the smallest debt.
- Attack the small debt: Allocate all the extra money you have to that debt until it's paid off.
- Repeat the process: Once the first one is paid, take the money you were using for it (the minimum + the extra) and add it to the minimum payment of the second debt. Your payment capacity grows like a snowball rolling down a hill.
Apply this strategy today
Totem Finance has the Snowball Method natively integrated. Register your debts and the app will automatically calculate which one you should allocate your money to this month.
Download Totem FinanceWhy does it work so well?
Mathematically, paying the debt with the highest interest first (Avalanche Method) saves more money. However, humans need motivation. By paying off small debts quickly, you get small wins (dopamine) that give you the discipline to stay strong when you reach the larger debts.