The debt snowball is a tested method for helping people who are drowning in debt.
While it’s not a mathematically sensible method, the psychology behind it makes it a rewarding experience that tends to keep people on track when paying off debt.
The debt snowball method is a process that has you paying off your debts one by one. You always start with the smallest debt and work your way up to the largest. While you’re paying off your smallest debt, you only pay your minimums on your other debts, using whatever’s left to pay back that smallest debt. Because this process doesn’t take interest rates and APRs into consideration, it’s not a good idea at all, at least from a mathematical point of view. So, if the math makes no sense, why does the method work?
People tend to forget that we are emotional creatures, no matter how hard we try to be logical. When we’re under stress, as we often are when we’re in debt, we don’t evaluate our situation as effectively. However, we all have certain psychological triggers that can spur us into action or scare us into ignoring the difficult things we need to do. This is where the debt snowball method shines.
The debt snowball method plays on our psychology by providing strong incentives to remove debt from our lives. Once you completely clear your first debt, you can see the fruits of your labor through a debt that used to haunt you being completely erased from your life. Every step in the completion of this process is a rewarding one, and seeing individual debts go away provides relief. If you’re particularly neurotic (stress has a strong and long-lasting effect on your thinking), the debt snowball is a course of action that’s worth looking into. If you’re exceptionally emotionally stable, another method, such as the debt avalanche, would probably make more sense for you.