Debt Snowball Method is a debt repayment method taught by Dave Ramsey. This method is also knows as Debt SnowBall Elimination Method, which Dave Ramsey introduced in his book ‘The Total Money MakeOver’. This method is a form of debt repayment management that is mostly suitable for credit card debts.
According to the Debt Snowball method, the debtor first needs to sort the debts from lowest to highest and then make the minimum monthly payments against all the existing debts, except for the smallest debt. The investor now should be careful in budgeting and cutting down on unnecessary expenses and then pay off the entire loan amount of the smallest debt. Once the first debt is paid off, according to the Debt Snowball method, the debtor should move on to the next smallest debt and the process will continue till all the debts are paid off. When the smallest debt is cleared for the first time, it gives the debtors one kind of motivation to pay off the next listed debts.
On the other hand, if all the debts were sorted according to the Highest APR to Lowest APR, then the debt elimination method would take many months if not years. However, according to Dave Ramsey, it is very important that the debtor is motivated to pay off his or her debts. It doesn’t matter in what order he or she chooses to do that.
But the critics of the Debt Snowball method have other story to tell. According to them, the main disadvantage of the Debt Snowball method is that the investors would have to pay more fees and interest charges than the investors who have used the Highest APR to Lowest APR method. But Dave Ramsey says that it�s the behavior of the debtors that matter more than the mathematics. The debtors submerged in numerous debts easily feel discouraged by the Highest APR to Lowest APR method that takes a huge time to be fully paid off.
The advantage of Debt Snowball method is more psychological than financial as the debtors see that more bills are paid off and get the satisfactory impression that they are making immense progress towards debt elimination.
Last Updated on : 1st July 2013