Difference between revisions of "Debt-snowball method"
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The '''debt-snowball method''' is a [[debt]] reduction strategy, whereby the debt with the '''smallest balance''' (as opposed to the '''lowest interest rate''', the traditional method) is paid in full first, then in future months the funds that were used to pay that debt are used to pay the debt with the next smallest balance, and so forth until the debts are paid in full, similar to a snowball rolling downhill gathering more snow. (This presumes that more debt is not added, which would defeat the purpose.) | The '''debt-snowball method''' is a [[debt]] reduction strategy, whereby the debt with the '''smallest balance''' (as opposed to the '''lowest interest rate''', the traditional method) is paid in full first, then in future months the funds that were used to pay that debt are used to pay the debt with the next smallest balance, and so forth until the debts are paid in full, similar to a snowball rolling downhill gathering more snow. (This presumes that more debt is not added, which would defeat the purpose.) | ||
| − | Financial advisor [[Dave Ramsey]] admits that the method is not necessarily the preferred method, but states that debt reduction is as much psychological as financial, and by seeing smaller debts paid in full, the debtor(s) see progress and are thus encouraged to continue. | + | Financial advisor [[Dave Ramsey]] is a major proponent of this method. Ramsey admits that the method is not necessarily the preferred method, but states that debt reduction is as much psychological as financial, and by seeing smaller debts paid in full, the debtor(s) see progress and are thus encouraged to continue. |
[[Category:Finance]] | [[Category:Finance]] | ||
Revision as of 01:45, June 30, 2022
The debt-snowball method is a debt reduction strategy, whereby the debt with the smallest balance (as opposed to the lowest interest rate, the traditional method) is paid in full first, then in future months the funds that were used to pay that debt are used to pay the debt with the next smallest balance, and so forth until the debts are paid in full, similar to a snowball rolling downhill gathering more snow. (This presumes that more debt is not added, which would defeat the purpose.)
Financial advisor Dave Ramsey is a major proponent of this method. Ramsey admits that the method is not necessarily the preferred method, but states that debt reduction is as much psychological as financial, and by seeing smaller debts paid in full, the debtor(s) see progress and are thus encouraged to continue.