The debt snowball method has been popularized by the well-known Dave Ramsey and is used by millions of people. Despite its popularity, it is not for everyone.
Let’s start with what the debt snowball method is. It starts by ordering all of your debts from smallest to largest. Most people don’t include their mortgage in this list. They then allocate all extra resources to attack the smallest debt while only paying the minimum payment on all other debt. They continue to attack the smallest debt until it is paid off at which point they move to the next smallest.
Pros: With this method people tend to feel like they are seeing results in a relatively short amount of time. This momentum is encouraging and often helps motivate the individuals to stay focused on getting out of debt. This is a huge plus because oftentimes, when people try to get out of debt, they get discouraged or lose motivation only a few months in.
Cons: This method gives no attention to interest rates. This could cause someone to pay more in interest if they are paying only the minimum payment on a debt, such as a credit card. The best method of debt reduction (dollar for dollar) is to focus on the highest interest rates first and then move to debts with lower interest rates.
Conclusion: While the snowball method is not technically the best method, it does work for a lot of people because it helps them actually stick to their plan. Debt reduction can be very challenging for some and the best method is the one that they can actually implement. Debt reduction requires a lot of focus and energy and regardless of the method, everyone has to look at their situation and decide what works best for them and their lives.