When it comes to managing your finances, debt can feel like a colossal snowball hurtling down a mountain, growing bigger and faster with every passing moment. But what if you could turn that snowball around, using its own momentum to help you become debt-free? Well, that’s exactly what the Debt Snowball Method is designed to do. And while this strategy has been embraced around the world, today we’re focusing on how it can help our friends in South Africa to roll towards financial freedom. So, let’s dive in!
What Is the Debt Snowball Method?
In simple terms, the Debt Snowball Method is a debt reduction strategy in which you pay off your debts in order of smallest to largest, regardless of the interest rates. When you’ve paid off the smallest debt, you move on to the next smallest, and so on, until you’re finally debt-free. It’s named after the way a snowball gathers momentum as it rolls down a hill, just as you’ll gather momentum as you eliminate each debt.
Why It Works
Psychologically, paying off a small debt feels achievable, and gives you the satisfaction and motivation of a quick win. Each time you pay off a debt, you are left with one less burden to worry about and more money to apply to the next debt on the list. This creates a positive feedback loop that encourages you to keep going.
How To Start Your Own Debt Snowball
1. List Your Debts
Write down all your debts, excluding your mortgage, in order from the smallest balance to the largest. Don’t worry about the interest rates for now, just focus on the amounts you owe.
2. Make the Minimum Payments
Continue to make the minimum payments on all your debts. This is crucial to avoid penalties and additional interest charges.
3. Find Extra Money
Look for ways to free up extra money in your budget. This could be by cutting unnecessary expenses, selling items you no longer need, or taking on a part-time job or freelance work. Every Rand helps!
4. Pay Extra on the Smallest Debt
Use the extra money you’ve found to pay more than the minimum on the smallest debt in your list. Put as much as you can towards this debt until it is completely paid off.
5. Roll It Over
Once the smallest debt is paid off, take the money you were putting towards it (the minimum payment plus the extra money) and start applying it to the next smallest debt on your list. This is your ‘debt snowball’.
6. Celebrate and Repeat
Each time you pay off a debt, give yourself a well-deserved pat on the back. Then, take your snowball and keep it rolling towards the next debt.
The South African Perspective
In South Africa, with its unique economic challenges such as high unemployment rates and the increasing cost of living, the Debt Snowball Method can be a realistic and empowering strategy. It can help you avoid falling into the hands of unscrupulous loan sharks and enable you to break free from the cycle of debt that so many South Africans find themselves trapped in.
Some Words of Wisdom
This method is not about math; it’s about behaviour. Yes, some critics argue that you might save more money in the long run by tackling debts with the highest interest rates first (known as the ‘Debt Avalanche’ method). However, the Snowball Method is designed to give you psychological wins that build momentum and motivate you to stick with your debt repayment plan.
Final Thoughts
In a country as beautiful but economically challenging as South Africa, becoming debt-free isn’t just a dream; it’s a path to a more secure and peaceful life. The Debt Snowball Method is a straightforward, achievable plan that can help you make that dream a reality. So why not give it a try? Start small, stay dedicated, and soon enough you’ll be rolling your way to financial freedom.
Remember, the snowball rolls in the direction you push it. Make sure it’s heading towards your financial freedom.
