Can You Throw a Debt Snowball to Cover Mounting Obligations?

It is easy to get buried in a mountain of debt, and it is much harder to shovel your way out. There is at least one method that people can use to help them clear the path to a debt-free future. Known as the “debt snowball” strategy, it starts with listing each of your ongoing payment obligations. This includes almost any kind of consumer debt, like credit card bills, medical balances, student loans, and personal loans. The only thing that cannot be addressed directly by the debt snowball method is a mortgage. The reason will become apparent. 

With the debt snowball approach, you make the minimal payment on each monthly bill, except for one. This single debt will be the first you target to wipe clean. If you make the minimal payment on the others, you may find that you have additional money available to pay off that chosen balance. 

How do you know which debt to target first? You choose the one with the smallest remaining balance but a high interest rate. Once that is paid off, then you move on to the liability with the next smallest balance. The key is to be disciplined enough to pay as much as possible each month to clear this obligation rapidly, so you can move onto the next one. 

As I said earlier, mortgages are not part of this discussion. The reason is that mortgages do not allow “minimum payments”—the monthly amount owed for the life of the loan is fixed. 

For people who can devote $3,000 monthly to debt repayment, and who have multiple credit card balances and loan amounts over say $35,000, it may be possible to clear these obligations within a year (depending of course on interest rates on the individual balances). And it has the psychological advantage in that you are targeting the smallest amounts first, the “low-hanging fruit.” The downside is that you will have more accumulating money owed on those balances with high interest rates. However, this method can help you rapidly pay off existing debt, as long as you don’t accrue more! 

At Isakov Planning Group, we specialize in this type of accelerated debt repayment plan. We’re the financial advisors who help our clients clear a path for a secure financial future. Contact us today!

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