{"id":1241,"date":"2021-11-30T14:45:23","date_gmt":"2021-11-30T12:45:23","guid":{"rendered":"https:\/\/swaper.com\/blog\/?p=1241"},"modified":"2022-06-07T11:15:58","modified_gmt":"2022-06-07T08:15:58","slug":"using-the-snowball-method-in-repaying-your-debts","status":"publish","type":"post","link":"https:\/\/swaper.com\/blog\/en\/using-the-snowball-method-in-repaying-your-debts\/","title":{"rendered":"Using the Snowball method in Repaying Your Debts"},"content":{"rendered":"

As was promised, we continue with yet another entry for our Book of Debt. This time we\u2019ll explore another method that might come handy in relieving your financial burden. Contrary to the grand-scale name of \u2018avalanche method<\/a>\u2019, this one is quite petite. If you give it a try, however, it hits just the right spot.<\/p>\n

It\u2019s a mere coincidence that the winter theme aligns with these blog topics. Nevertheless, it\u2019s rather fitting.<\/p>\n

Last time we touched the subject of repaying your most taxing debts<\/a>. The debts that would cost you more money if you let them drag out over their scheduled lifetime. Using the avalanche method to rid yourself of these debts is a very effective method. As when you eliminate the highest interest debt, you \u2018unlock\u2019 extra funds to help you proceed with your task a lot quicker. This method really works, especially once you get the process rolling down the slope. Get it?<\/p>\n

Why would I need another method then?<\/strong><\/h2>\n

Indeed, that is the question we\u2019ll try to answer this time. Because, financial strategies can be like crystal slippers in a way – one size could fit all. That is, if you\u2019re ready to lose a toe or develop a severe posture problem.<\/p>\n

There can be many reasons why repaying your highest interest debt first could be bothersome for you. For instance, you find yourself in a situation where it\u2019s prudent for you to eliminate the largest loan first, to reduce your total loan balance. That\u2019s typical if your intent is to get a larger loan in the near future – like a mortgage, for example.<\/p>\n

It\u2019s also of importance to not disregard the psychological struggle a person might experience when opting for the avalanche method.<\/p>\n

See, mostly the high-interest debts also tend to be the smallest in amount. Credit cards and personal loans around the world usually don\u2019t go much higher than \u20ac25,000 or equivalent. Compared to student loans, car leasing and mortgages that might only cover a third or less of your total loan amount.<\/p>\n

All this means that using the avalanche method can be taxing mentally. As your total loan amount will only decrease significantly if you remain disciplined and put all your additional funds towards the particular debt you\u2019ve started to repay, until you repay it and then move on to the next loan on your list and continue being disciplined.<\/p>\n

Truth be told, with your finances, it\u2019s always better to be disciplined and prudent. However, for some, it\u2019s easier said than done. So, why not look for another way?<\/p>\n

What is the \u2018snowball method\u2019 and how is it better?<\/strong><\/h2>\n

The snowball method is a strategy where you repay your debts starting from the smallest amount owed. Once you\u2019re done with the first loan, you move on to the next smallest. Similarly to the avalanche method, once ridding yourself of a debt you use the monthly amount used for that debt to add to the monthly payments of the next smallest debt.<\/p>\n

It sounds and works a bit familiar, especially in the long run. You start with a snowball and once you get rolling it grows in strength. You know, just like an avalanche.<\/p>\n

The difference with the snowball method is rather simple. You don\u2019t have to do any research whatsoever. There\u2019s no reason to calculate APR for any of your loans, or compare it. All you need to do is pick your smallest loan, and you\u2019re good to go. For example, out of the following:<\/p>\n

    \n
  • student loan – \u20ac10,000 with an APR of 2%<\/li>\n
  • credit card balance – \u20ac5,000 with an APR of 19.5%<\/li>\n
  • personal loan – \u20ac2,000 with an APR of 11%<\/li>\n
  • car leasing – \u20ac20,000 with an APR of 2.4%<\/li>\n<\/ul>\n

    You would pick the personal loan as the first to repay, then – the credit card balance. With the student loan and car leasing closing out the order. That\u2019s not at all like the avalanche method, is it?<\/p>\n

    Wait, last time you said that repaying high-interest loans first can save me money?!<\/strong><\/h2>\n

    Yes. And that still holds true. As you\u2019ve obviously noticed from the example, the snowball strategy doesn\u2019t care for interest rates and APR. The snowball method’s greatest flaw will be that you\u2019ll probably end up paying more money over the full lifetime of the loans.<\/p>\n

    If your financial situation warrants you to examine your loans thoroughly, establish an order for repayment and save as much money as possible – by all means, you\u2019d be best off with the avalanche method.<\/p>\n

    The good news is – often the smallest debts tend to be the ones with the highest interest rate anyway. Just like in the example, the two highest APR loans are personal loans and credit cards balances. So, even when using the snowball method you might accidentally strike gold and rid yourself from the most expensive loans first, too. That\u2019s like getting two birds with one.. snowball.<\/p>\n

    The intended gain from the snowball method, however, is not entirely financial. This method will help you repay a debt faster – so the gain will be more psychological than anything. The gratification from repaying a debt, especially if it\u2019s your first repaid debt after a financial struggle – well, it can be very exhilarating to say the least.<\/p>\n

    This feeling of exhilaration will feed your motivation to continue on your path towards repaying your debts.<\/p>\n

    In conclusion – let it go and start with something. Anything.<\/strong><\/h2>\n

    While picking the right strategy for you might indeed be confusing – it\u2019s important that we\u2019re here, having this discussion. See, you\u2019re already putting your mind to the issue. And, more often than not, it\u2019s as simple as just giving a go.<\/p>\n

    If you have multiple loans to your name. If you\u2019re struggling financially a little. If you\u2019re afraid that you won\u2019t succeed at climbing out from under the burden of your loans – really, try the snowball method!<\/p>\n

    This method works very well to start you off on your way. As soon as you see your first loan disappearing, you\u2019ll feel even more motivated than before. Consider that sometimes the smallest loans are the highest interest loans, too. Chances are, while starting with the snowball method, you\u2019ll simultaneously start with the avalanche method. And then go from there – you\u2019ll be glad you did!<\/p>\n","protected":false},"excerpt":{"rendered":"

    As was promised, we continue with yet another entry for our Book of Debt. This time we\u2019ll explore another method that might come handy in relieving your financial burden. Contrary to the grand-scale name of \u2018avalanche method\u2019, this one is quite petite. If you give it a try, however, it hits just the right spot. 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