Snow-ballin' Outta Debt
This post is not meant to be insensitive to anyone who has been negatively impacted by Covid-19 downsizing. The discussion is about one of the methods people choose to get out of debt and why this is a personal preference. This is not an instruction for anyone to do something that puts additional strain on the household, if this step needs to be taken one has to be deliberate in their actions to complete the process. Many financial gurus like Tiffany the Budgetnista, Dave Ramsey, Stacey Tisdale, and others all mention using different methods to pay off debt to live a debt free life. Many times one can choose the Snowball method or the Avalanche method. This post is about the Snowball method and my psychological preference(unprofessional of course) behind this choice.
Fortunately so, my spouse and I have jobs where our work has not been interrupted during this pandemic and our son has been home with us. That makes for a few less expenses one very big one being childcare. The idea to start paying off our debts was agreed upon before the pandemic and we were just able to find a "benefit" out of our predicament. The Snowball method is when one lists all of their debts from the smallest balance to the greatest balance, and you pay them off in that order until they are all paid in full. Some points to keep in mind include:
Once a debt is paid, DO NOT start using it again(i.e. credit cards, lines of credit, or installment loans)
Once a debt a paid, take the amount previously used for that account to add to the payment to be made toward the next targeted debt.
Continue to make all other payments on time.
This is the Snowball method in a nutshell, the idea being that you accumulate "traction" and have more money available to pay off the next debts until you have paid everything in full.
There are some downsides to using this method. The main disadvantage is that it can result in you paying more in the long run because the larger interest rates may take longer to payoff. In contrast the Avalanche method includes paying debts based on their interest rates. One takes the same approach and lists debts from highest interest rate to lowest rate and one focuses on the debt with the highest interest rate first. This has a main goal of saving more money in the interest that is calculated and saves money in the long run. Personally this is not my preference because initially, I would still have to make the same number of payments per month. To me this is problematic because I lose interest in things when it does not seem like I am making progress. Knowing my strengths and weaknesses allows my husband and I to make the decisions which fit our situation best.
Psychologically, I prefer to scratch things off of my "To-Do list" rather than keep them open on said list. That sense of accomplishment allows me to continually check-in, evaluate, and continue with the plan. This is why I prefer the Snowball Method. (Although, I may have a subconscious affinity for this method because in Chicago we call my favorite summertime treat a snowball, while everyone else calls them snow cones). If there are some obstacles which present themselves it is easier for me to adjust accordingly. In our case, this method is acceptable. One also has to consider the types of debts they hold when making this decision because some balances are large and have lower interest rates, such as a mortgage or student loans so in both options, these debts will be at the end of the list. If your goal is to payoff your mortgage in a certain period of time then neither of these might apply to you as viable options, you will just have to focus on making payments to payoff that particular debt. The main thing to keep in mind as with anything is to do what is best for you and your household. Find out the details, apply them to your situation, and make the decision that works for you.
Have you tried any particular method to payoff debt and if so which one?
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