Paying Off Debt

Why the Debt Snowball Method Doesn’t Work: How to Pay Off Credit Card Debt FAST!

August 2, 2022
Learn how to effectively pay down debt using the intelligent snowball method, a step-by-step strategy that takes into account interest rates and helps you save money in the long run.
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Britt & Laurie Anne
Two female investors in their 30s with a collective net wealth of over $6 million+
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Paying off debt seems overwhelming. I should know; I was once $40,000 in debt. But when you have an actionable, realistic strategy for paying down your debt, it makes it a lot easier.

You may have heard people talk about the debt snowball method, but that actually isn’t the most effective approach to paying down debt. Today, I’m going to teach you our step-by-step, stress-busting method for effectively paying down debt: our signature intelligent snowball method.

What is the debt snowball method?

The snowball method is an approach to debt reduction in which you pay off the smallest debt first, then the second-smallest, third-smallest, and so on. You know, like a snowball — you start off with a little clump of snow, then you pat in more and more and soon enough you have a whole snowman.

This is a method that’s recommended by a lot of financial experts, like Dave Ramsey, as being the fastest way to pay down debt. And there is a psychological advantage to it: being able to get a quick win keeps you motivated to continue making progress toward financial freedom.

But it isn’t the most effective way to pay down debt. I’m going to explain our next-level system for paying down debt in a second, but first, let me explain why the snowball method falls short.

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Why the snowball method doesn’t work for paying off debt

The snowball method doesn’t take the cost of your debt (aka the interest rate you are paying) into account at all. It focuses entirely on the lump sum.

The problem is that interest ends up making up a large percentage of your total debt. If you have a debt with a huge interest rate further down your list, that could end up costing a LOT more than your other debts - meaning you pay more and it takes you longer to get out of debt, which delays you from starting investing.  

We always recommend paying off high-interest rate debt – meaning debt with an interest rate of 7% or more – before you start investing because otherwise your debt will cost you more than you can make by investing.

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So, that’s why the snowball method falls short. If you’re ready to learn what DOES work, give this video a thumbs up!

How the intelligent snowball method works

The snowball method isn’t completely wrong; it’s just slightly off-mark. What I suggest using instead is called the intelligent snowball method.

The intelligent snowball method starts the same way as the classic snowball method.

1) List out all of your debts — amount owed and the interest rate – in order from smallest to largest

Your spreadsheet may look something like this:

Now, just like the snowball method, you’re going to…

2) Pay down your smallest debt first

That means that every month, you pay the minimum amount on all of your debts, but you pay anything else you can spare on the smallest debt.

Gradually, you’ll pay down that one completely.

Congratulations! You’ve paid down your first debt!

3) Celebrate every victory

…in a way that doesn’t cost too much money, of course. Rewarding yourself will give yourself a little encouragement and make it mentally easier to continue paying down your debt.

4) Pay off a debt with an interest rate of 5%+

With the usual snowball method, you’d pay down the second-smallest debt next…but with the intelligent snowball method, if you have a debt that has a much higher interest rate, you’ll pay that off first.

Now, you only need to worry about this if the APR is significantly higher; let’s say 5% or more.

That way, you’re building your confidence AND reduces the amount you’ll have to pay in interest, effectively lowering the amount you’ll pay overall and saving you a lot of money and getting you out of debt and into wealth building mode faster.

After that, you’ve paid those first two debts off…

5) Keep paying down debt from smallest to largest interest rate

Keep it up until you’re debt-free!

Not sure what to do next?

You might be thinking, “Cool, now I have a method for paying down debt…but how do I actually do it?”

If you want to learn more about how to pay off debt, sign up for our free mini-course, 5 Days to Debt Free, where we teach you the basics of how to pay down debt.

If you’re serious about getting rid of debt and want a simple, proven system to start paying down debt for good, we have in-depth training on how to pay down credit card debt, take  control of your finances, and build wealth in our course, the Million Dollar Year.

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