Turning up the heat

As you can imagine, there are multiple approaches to reducing your debt levels, some less painful than others.  The obvious and most widely used approach is to just pay the minimum on all your cards and a little extra here or there as your budget allows.  While this approach can eventually succeed, it can take a very long time before you see significant progress and it takes great determination to keep up with the somewhat Laissez-faire approach without any structure, clear strategy, timeline, etc.   For those with large debt levels, using a unstructured approach to tackling your debts can leave you with a hopeless feeling. 

This article is all about one debt reduction approach.  It may not work for everyone, but its simple, effective and very structured.  The approach we’ll cover in this article is called the “snowball method” (so named by Dave Ramsey).

The technique

The technique is, in essence, very simple. Order your debts from lowest to highest. Pay the minimum required on all monthly debts, then allocate any remaining funds you can to paying off the smallest debt. Thus, the smallest debt will get paid off first. This frees up yet more money to apply to the next-smallest debt. Repeat until you have reached the level you want.


The snowball method has several advantages.  By “snowballing” your debt payments, you’ll see regular, visible progress in reducing your debts and, in a relatively short period of time, you could well be down to a livable level. As you roll-off those debts, you have more free income which can be split between payments on the debt next in line and the enjoyment of some of the rewards of having less debt (more disposable income, more money available to put towards retirement, less stress, etc).

Psychology is king when it comes to reducing your debt

Psychologically,  the snowball approach helps keep the debtor motivated to continue the program. Seeing real progress helps one stick with it during a financially challenging period. 

One can get carried away with attacking high-interest loans first which is, technically, a better approach in the long run for in regards to total interest paid but the psychological benefit of the snowball approach should not be underrated.   Seeing your number of outstanding loans decrease month over month or year over year will keep you going.  You’ll see tangible results.  Snowballing the debt payments will also help to keep you disciplined as you’ll know exactly how much you should be paying every month toward eliminating your debts.


Don’t be distracted by credit card “rewards”

By rigourously adhering to the snowball approach, you’ll know how much you should be paying each month and won’t fall victim to credit card trickery.  Keep in mind credit card companies don’t really want you to pay off your debt.  If you pay it off, they’ll make no interest off you.  As you start to decrease your debt levels, don’t be surprised if your credit card offers you a lower minimum payment on a given card or a ‘payment-free’ month.  Its their attempt to keep you paying interest.  When they make you this offer on the snowball approach, you can either ignore it entirely or, if that card isn’t your card with the lowest balance, you can apply that month’s payment to your current snowball target. 

Once you’ve started attacking your debt, consistency and determination are key.  You need to stay motivated and get positive reinforcement to continue your debt reduction cycle.  The snowball approach to reducing your debt offers you strategy, rigidity, and a very rewarding system to start reducing your debt levels immediately, starting with this month’s payments!