Blog

The Debt Snowball – Proof That It Works!

By Debt.ca on November 26, 2012 No Comments

We’ve talked before about paying off your debt with the snowball method or if paying off in order of highest interest works better. Now, the Kellogg School of Management has done an actual study to determine which method is more effective.

The Study

Researchers obtained the data of how 6,000 people paid off their credit card debt from a debt settlement company.  After examining how each of the 6,000 people became debt free, they determined that those who went against the more popular high-interest method and used the snowball strategy were more likely to be debt free.

The Conclusion

Their main conclusion was that “Closing debt accounts – Independent of the dollar balances of the closed accounts – predicted successful debt elimination at any point in the debt settlement program.”

The Key

The obvious question is why would people be more likely to become debt free at the same time they’re paying more in interest costs to service their loans? The answer is in the victories and confidence that comes from closing off an entire debt. Consider an example.  Two people with $20,000 in debt.  One has a single loan with a 3% interest rate. The second has a $2,000 debt, an $8,000 one, and a $10,000 one.  Even if the interest rates are higher, this person targets that first $2,000 with everything they have. Both people pay back $2,000 at the same time.  The first person now has a balance of $18,000.  It’s a good chunk, but they’ve still got a LONG way to go. The second person however completely wipes out that $2,000 debt. Now when person #2 looks at their situation all they see is an $8,000 debt and a $10,000 one.  Sure the $8,000 loan will take longer to pay off, but in a way they’re already one-third of the way there. This is the mind-set that people end up with when using the snowball method – slightly higher interest charges can’t hold a candle to the excitement of knocking these debts off. If you’re currently working towards paying off your debts, consider trying the snowball method.  Pick your smallest debt and throw everything you can at it.  See how it feels in a month or two when it’s completely gone and you never have to think about it again. If you’re worried about the extra interest, at least take a moment and calculate what it will actually be – it’s often a much, much smaller amount than you assume it will be.

Avatar

Debt.ca

Admin


Interviewing credit counsellor

What to Look for in a Credit Counselling Agency

By Joe Torraca on October 26, 2020

Do you know what to look for in a credit counselling agency? Do you struggle in planning a realistic budget, handling your finances, or paying off your debts? If your answer is yes, then it’s time that you look for help. Working with a credit counselling agency helps when it comes to important financial matters….

a computer with student loan repayment plans

Can I Change My Student Loan Repayment Plan?

By Debt.ca on October 22, 2020

Ever ask yourself “Can I Change My Student Loan Repayment Plan?” If you’re having difficulty paying your student loan, there’s an option for you to change its repayment plan. You can also avail of alternative payment plans for private student loans. Talk with your lender about it or read the loan agreement to figure out…

Couple looking at debt management forms

Debt Management Program Pros and Cons

By Joe Torraca on October 19, 2020

Have you thought about the debt management program pros and cons to get out of debt? Many folks who have high-interest unsecured debt resort to enrolling in a debt management program (DMP) to solve their financial problems. This option can help reduce the interest rates on your debts and lower the amount you’re paying every…

DIY debt settlement negotiations

Debt Settlement Negotiations: A Do-It-Yourself Guide

By Debt.ca on October 14, 2020

Considering debt settlement negotiations can be stressful. Debt is indeed a serious obligation that affects your finances and life in general. But just imagine getting burdened with multiple debts that you already have a hard time paying back. For sure, that’s a difficult situation that you want to escape as soon as possible. Folks who…

Leave a Comment

Free Savings Estimate

How much do you owe?

$100,000

$5,000
$100,000
Live Chat
Welcome to our Live Chat
Agents are not available at this time. Please leave a message. Thank you.
First Name
Last Name
Phone
Email
Postal Code
Debt Amount
 
PHP Live! powered