Posted by Maneesh Sethi :: December 17, 2008 @ 6:20 am

Looking at your bills every month, I'm sure you have the same thought as everyone else: "I'm never going to pay this off!" When you have several bills, each with its own balance and interest rate, it can begin to feel like you won't ever be able to beat them all. However, there are some strategies that can help you conquer your debt. One of the best strategies for dealing with multiple bills and credit card payments is the “debt snowballing” method.

What is it?

Debt snowballing is a recent strategy for beating debt, but it is so popular that there is even a Wikipedia page on the subject! According to Wikipedia:

"The debt-snowball method of debt repayment is a form of debt management that is most often applied to repaying revolving credit — such as credit cards. Under the method, extra cash is dedicated to paying debts with the smallest amount owed."
It seems so simple! All you do is pay extra cash to the bill with the smallest balance! Well, that's not quite it...

How does debt snowballing work?

The Wikipedia definition offers one half of the process of debt-snowballing. The way it works is very simple: 1) Pay off your smallest bills first and 2) use the extra money you have left over from the smaller bills to pay off the next biggest bill.

In this way, you start with the smallest problem – the smallest bill. You quickly pay it off as fast as you can (while still continuing to make the minimum payments on all of your other bills). Then, as soon as you've paid off that small bill, take that money and apply it to the next largest.

Why does it work?

Debt snowballing works because it plays on human psychology. Yes, you're paying the same amount for your bills each month, but your bills are disappearing one by one. And as each bill is paid off, the amount you contribute to the larger ones snowballs into a larger bill payment. After paying off your first few bills, you will have a lot more cash to pay off the larger ones!

Some extra reading

Check out Trent's post at The Simple Dollar on how he sees debt snowballing. Also, take a look at this calculator to see how debt snowballing might work in your situation.
Have you tried this strategy before? Has it worked for you?