SL: Snowball Your Debt Reduction into An Avalanche
The debt crisis has reached such heights in the U.S., it’s emotionally draining. Whether you’re personally in debt, or you know someone in debt, we all know it’s entirely possible to pay down the minimum on your loans and never make a dent in your debt.
According to LendingTree, in 2018, the average amount of debt in a U.S. household was a striking $144,000. With a median household income of just $59,000, paying off that debt can be really difficult.
From strongest contribution to lowest, that American debt comes from mortgages (the most significant portion of the total average), student loans, auto loans, credit cards, and personal loans.
Some people pick up a side hustle, and use the money from that to clear debt. Some people live on a skeletal budget. Others sell surplus belongings and use the proceeds to fund their repayments.
Today, we’re going to look into an extremely effective debt elimination strategy — snowballing your debt.
Now, repayment delinquency levels are at historic lows (except for student loans. We could probably hazard a guess as to why.) What does that mean?
It means that everyone is trying to get out of debt. There are tons of methods touted by financial pundits, on the web, that your grandmother swears by — so why isn’t everyone closer to getting out of debt?
Mostly, people just stagnate.
That’s where this method is valuable: Snowballing your debt helps create movement, and thus progress. Then you won’t find yourself lining your bank’s pockets with minimum payments and late fees.
Here’s how it works:
- Step One: Assess your total debt. Let’s say you have a mortgage, a credit card, student loans, and a car note. Stack these next to each other from lowest to highest.
- Step Two: We can imagine it might look like this:
- Credit card
- Car note
- Student loan
It’s now your responsibility to make sure you can come up with $1485 every month. Now, if that seems like an impossible hurdle, you may need to employ a supplementary debt relief strategy (like picking up a second job or maintaining a strict budget.)
The best thing about this strategy is that it tackles one of the major issues holding people back from progress. As we discussed earlier, delinquency rates are much lower than they’ve been in recent years. Yet despite Americans trying to pay their debt off with more consistency than ever, total American debt is on the rise.
This can be attributed to higher interest rates, lower credit scores, and higher cost of living without wage raises to compensate.
By starting with paying the minimum, and adding bigger payments as each debt lessens, you escape the endless trap of being charged so much interest that even the payments you’re making don’t matter.
Snowballing your debt results in:
- Higher credit, as FICO scorers recognize bigger payments and usually raise your score
- Lower debt overall, and much less financial futility
- And more trust from lenders when you can prove a history of actionable repayment
Give it a try! Snowball your debt into an avalanche that eventually leaves you free, clear, and totally unencumbered.