The debt snowball is a proven strategy to assist individuals overwhelmed by debt.
While it may not be the most logical approach mathematically, the underlying psychological aspect makes it a motivating process that helps individuals stay focused on reducing debt.
The debt snowball method involves tackling debts step by step, starting with the smallest debt and progressing to the largest. While working on clearing the smallest debt, only minimum payments are made on other debts, with any remaining funds directed towards paying off the smallest debt. Despite not factoring in interest rates and APRs, this method may not make sense from a mathematical standpoint. So, why does it work?
It’s essential to remember that humans are emotional beings, and even when attempting to be rational, emotions can heavily influence decision-making, especially in stressful situations like being in debt. We all have psychological triggers that can either motivate us to take action or deter us from facing challenging tasks. This is where the debt snowball method excels.
The debt snowball method leverages our psychology by offering strong incentives to eliminate debt. Clearing your first debt completely allows you to witness the tangible results of your efforts as a financial burden is lifted. Each milestone achieved in this process brings a sense of accomplishment, and seeing individual debts vanish provides a sense of relief. Individuals more prone to stress and persistent worry may find the debt snowball method particularly beneficial. On the other hand, individuals with greater emotional stability might find the debt avalanche method more suitable.
