Debt Snowball

The debt snowball refers to a method of paying out debts. It is very popular debt repayment method. Many renowned financial experts and industry insiders recommend this method. The debt snowball works in the following way. The debtor should list all his debts in descending order by interest rate irrespective of the balance.

The debt with highest interest rate in the beginning and the lowest interest rate at the end. He should decide the amount of money he can use from your budget for debt snowball. The more money he use for debt snowball, the more he saves. He can pay out his debts as soon as possible.

Every month, the debtor should use the minimum payment and the extra money for first debt or the higher interest debt. Following this, allot only the minimum payment for other debts. This method should be followed till the high interest debt or the debt that topped the list is completely paid off. Now he should pay the minimum payment and extra payment for the second debt in the list. Similarly he should keep paying the minimum payment and extra payment for the debt that is snowballing till he pays off all his debts. More Terms Explained