If you’re like me, you really want to get out of debt but you’ve heard SO many different suggestions that it’s all a bit overwhelming.
Getting out of debt is a huge goal my husband and I have right now. We’re making big sacrifices in order to have a couple hundred buck to pay back with each month.
So believe me, I don’t want to be putting all that work in and then not paying off debt in the most effective way.
I’m guessing you’re the same. Who wants to waste time and money doing something that doesn’t work?
Luckily, neither of us have to wonder about the best way to pay off money, because there’s some awesome research out there that nails it down.
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The BEST Way to Get Pay Off Debt
So what’s the secret to paying off debt? Well, you may have heard of it – it’s commonly called the snowball method.
Yeah, that’s right, that super-popular Dave Ramsey method.
A while ago I wasn’t sure it was all it’s cracked up to be, but that was before I did my homework. Turns out the research says it’s the real deal!
What’s the Snowball Method?
The snowball method means you pay off your debts one at a time, from smallest to largest.
It goes like this:
- Write down all of your debts.
- Put the debts in order from smallest to largest.
- Put as much money as you can towards your smallest debt.
- Keep making minimum payments on all other debts.
- When your smallest debt is paid off, start focusing on the next smallest debt, putting as much money as possible toward it.
Why Does the Snowball Method Work?
Using the snowball method can seem a bit counterintuitive. I mean, *technically* it doesn’t always make the most financial sense.
For example, what if your largest debt also has the highest interest rate? Somebody who was looking at just the numbers might tell you to pay that loan off first so you stop wasting money on interest.
However, doing things in the way that makes the most financial sense doesn’t always motivate us, and you have to stay motivated if you’re going to become debt free!
The Research – It’s About Motivation
A 2016 study looked at a bunch of people who were trying to pay off debt, to see what made them most successful.
This study found that paying off the smallest debt first made people more motivated to pay off ALL THEIR DEBTS.
That’s because the bigger the portion of the debt people are paying off, the higher their motivation is. Let me explain:
Let’s say you have two loans:
- Loan one = $1000
- Loan two = $200
Imagine each month you have $100 to put towards debt repayment. You COULD put $50 towards each loan. OR you could put $100 towards just one loan.
Here’s how your motivation would probably pan out in the different scenarios:
Lowest motivation option = put $50 toward each loan
Medium motivation option = put $100 toward the $1000 loan
Highest motivation option = put $100 toward the $200 loan
If you really want to stay motivated and give yourself the best chance of paying off all your debt, put as much money as you can toward your smallest loan.
*Pro Tip: If you’re struggling to save money for debt repayment, you should REALLY think about using a budget. And if your credit cards are a little too tempting, think about starting to pay for your daily expenses in cash. This can help you better track how much you spend, and when the money’s gone, it’s gone!
There are some great tools out there that make cash budgeting super easy (and cute)!
How Well Does the Snowball Method Work?
Just to hit this home, there’s another study from 2012 that found THE SAME THING – paying off your small debts first makes you more likely to become debt free.
This study actually found that people who paid off their smallest debt balance first were 14% more likely to get rid of ALL DEBT than people who just paid off random balances.
14% is pretty significant – that snowball method could really increase your odds of successfully paying off debt.
Make Your Plan and Get Started Today
Now that you know what the research says about how to get out of debt, you can get to work making a plan to pay off all the money you owe!
It might be overwhelming at first, but as you sit down, figure it out, and start paying off that smallest debt, you’ll be closer to debt free – and that’s pretty exciting!
What have you tried doing to pay off debt? How did it go? Let us know in the comments below.