Using the Snowball Method to Eliminate Debt

In today's tough times, many of us are trying to reduce our debt burden to improve our financial situation in the face of recession. While there are many ways to approach this goal, one increasingly high-profile and popular method is the so-called "Snowball" method espoused by financial guru Dave Ramsey.

The snowball method offers a way to break your debt down into manageable chunks so you can make steady, visible progress in eliminating all your bills. The method basically involves the following steps:

1. List all your outstanding debt, from the smallest to the largest

2. Determine how much money you can reasonably redirect monthly toward paying off your debt

3. Divide your allotted money into minimum payments on all the bills except the smallest

4. Use the remaining amount of your allotted funds to pay the smallest debt

5. Once the first debt has been paid off, focus all the money you've been paying on the first debt on the second one. You'll be paying the extra amount on top of the minimum payment you've been making.

6. Continue down the line. By the time you reach the largest debt, the amount of money you're paying toward it will have "snowballed," enabling you to eliminate even this larger bill in a reasonable amount of time.

While this process is underway, it's important not to incur additional debt, so don't use any credit cards or take out any additional loans unless absolutely necessary, such as for a medical emergency.

What People Critics About Snowball Method?
Critics of the snowball method say that it makes more sense to pay down the debts in order of which has the highest interest rate. However, Ramsey says that if this is your largest debt, the amount of time it could take you pay it off will be discouraging, making your debt burden seem insurmountable. By starting with the smallest dollar amount, you can see success in a relatively short period, giving you initial success that will encourage you to continue with the plan. By the time you reach the largest debt, it will also be paid down more quickly because of the way you've focused the payments.

There are, of course, many ways to approach this conundrum. You might want to start with the debt that you know will give you the largest emotional boost if it's paid off--for example, the debt that's been on the books for the longest amount of time. And if paying the debt with the highest interest first seems like the best approach to you, that might be a good choice for your personal debt management plan. The point is, whatever approach you choose, get started. The sooner you get a plan underway, the sooner your debt will melt down and disappear.