Becoming Debt-Free – An Introduction To The Snow-ball Method

“Debt is the worst poverty.” Thomas Fuller

Having debt to pay can cause such distress. It’s like having a ticking clock following you around everywhere you go. Day or night, your mind reminds you of the rates and how the debt increases each day that it remains.

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I am lucky not to have any student loans or a mortgage to worry about right now. I don’t know how I would’ve coped if I did.

I lost my job to AI last year, and seeing the world trying to remove and replace humans in many industries is disheartening, to say the least. Even more so when it is jobs that relate to art, creativity, design and emotions because all of the above require a human touch.

Robots cannot feel nor think for themselves. All they can do is search for the information among the information they have been programmed with. A human must first program and teach AI to think the way the human wants it to think.

I cannot fathom how the world cannot see the danger in that. To have us all rely on AI, and have certain organisations and people be in charge of programming AI and filling it with certain opinions and a certain perspective… AI could so easily be used to control, abuse and manipulate people on a global scale. It is quite terrifying, but no one seems to realise. All they can think of is the idea of having a computer do their work for them while they get paid to do nothing. But if something sounds too good to be true, it is.

The world is heading in a direction that I’m not sure will be at all good for any of us. But I digress, so let’s get back to the topic at hand.

What is a debt?

If you borrow money without paying it back right away, you have a debt to whoever you borrowed the money from. You must pay back the debt in full, as well as an interest rate. That means that you will end up paying more money than you once borrowed. Usually quite a bit more, but the rate depends on what kind of loan you have. A mortgage has one rate, and a personal loan has another entirely.

We live in a debt culture

Media and marketing continues to encourage us to put ourselves in debt. Even more so now that people are worse of financially. Pay-later-options are exceedingly popular and are marketed to everyone as though they were the perfect solution to all of our problems. We are encouraged to agree to payment plans, credit cards and smaller loans, without truly understanding what we are getting ourselves into.

Here in Sweden, and in other parts of the world, many people use something called Klarna. You can pay an invoice after thirty days or choose to receive a monthly invoice where all of your purchases end up on the same invoice. You can also postpone payments and pay something off little by little. But there are rates, fees and once you’ve made an account with them, it is near impossible to get it deleted.

I have tried to get mine deleted many times, but they keep making excuses until I end up using their payment service again. And these days, most shops use Klarna, and many of them have no other payment options available. With the Pay-Later marketing and offers of paying something gradually or next month, people are encouraged to spend money they don’t have on things they don’t need. And with the payment options available online, people also often end up spending more money than they would have if they had made the purchase in person.

Text loans, small loans, personal loans – all kinds are being marketed to us and many agree without grasping what it means. They either don’t read the fine print, or they simply proceed without understanding it.

How do we pay off debt?

One common and popular way to pay off debt is called the snowball method. I imagine most of you have heard it mentioned at some point. It works with both large and small debts and it does make things feel more manageable. I used it when I paid off my student loan years ago. I ended up paying it off in a few months.

The snowball method gives people a systematic and straightforward approach to paying off their debt. It focuses on starting with paying off the smaller debts and working gradually to pay off the larger ones. It gives you confidence and gives you little wins that keep you motivated to pay it all off.

It intends to create a sense of accomplishment. People like feeling like they’ve crossed something off a list, and they need wins to keep them going. It’s like when you got a gold star on your test when you were a kid. Long before you got your grades. It was a mark of approval and acknowledgement of your efforts. So the idea is that you divide the debt into smaller debts and with each one you pay off, you end up feeling a little bit better about yourself. It makes you feel proud of your accomplishments.

To use the snowball method, you simply need to follow these steps:

1. Make a list of all of your debts. This includes credit card balances, payment plans, student loans, mortgages, personal loans and even money you may owe friends or family. You must do so to get an overview and truly understand your total debt, the interest rates and at what rate you need to pay it off.

2. Place the debts in order from the smallest to the largest. You will address them in order by paying off the smallest debt first and continuing upward, regardless of the interest rate.

3. While you focus on paying the debts in order, you still need to continue to make minimum payments on the remaining debts. You don’t want any penalties, extra fees or a negative impact on your credit score.

4. Put any extra income or savings into paying off the smallest debt. That way you will pay it off sooner.

5. Celebrate each win, but celebrate without spending money. You don’t want to celebrate a debt paid off by starting a new one. The positive reinforcement helps you stay motivated throughout the process.

Repeat the process until you are completely debt-free. The more debt you pay off, the more money you will have to pay it off. Now that might sound strange, but with each debt you pay off, it is one less minimum payment you need to make each month. This is what is referred to as the snowball effect.

The method is often said to have been invented by the personal finance expert Dave Ramsey. He didn’t invent it, however, he made it popular by writing and speaking about it in his books, radio shows and educational programs. In other words, it is thanks to him that the method is so widespread today.

Dave Ramsey is a famous author and motivational speaker who knows a great deal about personal finance and debt management. He uses the snowball method in his comprehensive approach to helping people achieve personal freedom. In his program and books, he teaches people how to budget, save and invest money to build wealth.

What about high-interest loans?

If you have high interest loans, I still think you can use the snowball-method, only you’d have to use it a bit differently. Instead of paying off smaller loans first and moving along to the bigger ones, you would divide your debt into smaller sums. The smallest sum would then be your first debt to pay off. That way you are still focusing on paying off your high interest loan, but you are making it manageable for yourself, which is key to be able to pay it off in full.

That is how I paid off my student loan in a matter of months. It made it manageable and it made it feel a little like a game, which I felt turned it into something quite fun. And if you are enjoying yourself and allow yourself to feel excited about being mindful with money and being debt-free, you are doing yourself a huge favour.