So how do we start this great adventure of getting on top of debt profligacy, taking charge and becoming masters of our own destiny? Is it merely a matter of devising a plan and sticking to it? I know it sounds simple, but we do need to keep it simple in order to get started, get commitment from the family and get underway. And what is this debt snowball thing anyway?

The debt snowball is just a fancy, easy to remember name of a plan or strategy. The plan starts by identifying and ordering the total of all outstanding debts. All debts need to be identified with outstanding amount, interest rate and minimum monthly payment lined up on your sheet of paper (or spreadsheet).

 The objective of the debt snowball is to get some early wins first. Purely speaking you may save a bit more money by paying off the loan amounts that attract the highest interest rate first. But they may not give you the quick, early wins. So you pay the lowest debt out first, then add (snowball) that payment to the minimum payment being made to the next smallest debt. Once you clear the smaller debts, you have a larger amount per month to tackle the larger amounts.

This method has been known for years, but was made popular by financial expert Dave Ramsay. He promoted it in his books and website, and recommends it as a key plank in reducing debt. It is simple, and gives the consumer some early control and early wins.

 One of the big advantages of using the debt snowball method is the reduction of the total amount owed to creditors in a single month. This can be a real blessing in case you encounter an unforeseen situation like loss of job or medical emergency.

 The debt snowball method is often compared with the so called debt avalanche theory by which you try to eliminate the debt with the highest rate of interest first. The avalanche approach is technically better than debt snowball as you have to pay the least amount of interest. Nonetheless, the debt with highest interest rate can also be the one with the highest balance. This means it will take a long time to pay it off which can have a psychological impact on you. It is highly possible that you will try to get rid of it for several months only to give up because of a feeling that you are getting nowhere. This is where debt snowball scores over debt avalanche. The “quick wins” you get with the debt snowball, gives you hope-something very important, sometimes more important than money.