6 Reasons Why Your Debt Snowball Isn't Working (2024)

FAQs

6 Reasons Why Your Debt Snowball Isn't Working? ›

Does not save maximum interest: The debt snowball method is not necessarily the best choice for saving money on interest. Because you're prioritizing balances over interest rates and only making minimum payments on debts that are low on the list, you could end up paying considerably more in interest over time.

Does not save maximum interest: The debt snowball method is not necessarily the best choice for saving money on interest. Because you're prioritizing balances over interest rates and only making minimum payments on debts that are low on the list, you could end up paying considerably more in interest over time.

If you were to make only the minimum amount due on all of your debt, it would take about five years to become debt free. In contrast, using the debt snowball method by paying an extra $100 a month on your smallest balance, you'd be out of debt in about three years and save nearly $1,800 in interest.

With the debt snowball, you pay off your smallest debt first and then apply the payments you were using toward that to pay the next-smallest debt. This strategy allows you to build momentum or “snowball” your payments as you pay off each debt.

The truth about the debt snowball method is it's a motivational program that can work at eliminating debt, but it's going to cost you more money and time – sometimes a lot more money and a lot more time – than other debt relief options.

The snowball effect can describe how many significant changes happen from small initial changes. A snowball can also explain positive as well as negative effects and can be applied to many areas, such as social influence, business, learning, and mental health.

If you're motivated by saving as much money as possible down to the last penny, you'll probably prefer the “avalanche” method. On the other hand, if getting a quick win right off the bat encourages you to keep moving forward, then the “snowball” method will likely motivate you the most.

Prioritizing debt by interest rate.

This repayment strategy, sometimes called the avalanche method, prioritizes your debts from the highest interest rate to the lowest. First, you'll pay off your balance with the highest interest rate, followed by your next-highest interest rate and so on.

As you roll the money used from the smallest balance to the next on your list, the amount “snowballs” and gets larger and larger and the rate of the debt that is reduced is accelerated.

It will take 47 months to pay off $20,000 with payments of $600 per month, assuming the average credit card APR of around 18%. The time it takes to repay a balance depends on how often you make payments, how big your payments are and what the interest rate charged by the lender is.

How long will it take to pay off $30,000 in debt? ›

The minimum payment approach

If you only make the minimum payment each month, it will take about 460 months, or about 38 years, to pay off that $30,000 balance.

The avalanche method is a debt repayment strategy focusing on paying off the account with the highest APR first, moving down from there. The debt avalanche method can take longer than other repayment strategies, but you could save more on interest in the long run.

Consider the snowball method of paying off debt.

This involves starting with your smallest balance first, paying that off and then rolling that same payment towards the next smallest balance as you work your way up to the largest balance. This method can help you build momentum as each balance is paid off.

Returns May Be Lower: The flip side of stability – returns might not be as high as the stock market's rollercoaster, but hey, you won't lose sleep either. Interest Rate Risk: When interest rates change, the value of your debt fund can dance to their tune. Just a heads up.

During Debt Review, you cannot access new loans or credit cards. While this helps break the borrowing cycle, it can restrict your financial flexibility. This is a big ask for most people. And understandably so, stepping away from the dependency on credit is a big hurdle.

Pros of debt financing include immediate access to capital, interest payments may be tax-deductible, no dilution of ownership. Cons of debt financing include the obligation to repay with interest, potential for financial strain, risk of default.

the avalanche method. The "snowball method," simply put, means paying off the smallest of all your loans as quickly as possible. Once that debt is paid, you take the money you were putting toward that payment and roll it onto the next-smallest debt owed.