Snowballing debt is becoming a popular method of debt relief because it has psychological and financial benefits. The financial aspect involves paying off debts in a timely manner. Snowballing debt eliminates small debts quickly so you see results fast, which is a psychological gain. Here are the basic principles of Snowballing debt:

• Write out all debts in ascending order from smallest to largest according to balance amount. This is a unique feature because the order is determined by amount owed, not highest interest rate. However, if two debts are nearly equivalent in amount, then the higher interest rate debt would be paid first.
• Determine the minimum payment on every debt and commit to paying those amounts each month.
• Establish how much extra cash can be applied towards your debt.
• Pay the minimum payment on each debt plus the extra amount towards the smallest debt until it is paid off.
• Add the old minimum payment from the smallest debt to the extra amount, and apply that towards the next smallest debt.
• Repeat until all debts are repaid.

Theoretically, the extra amount plus old minimum payments will increase each time a debt is paid off. Thus, you will begin to pay larger and larger amounts toward your biggest debts until they are all paid in full. The increasing amount is like the momentum of a snowball rolling down a hill, constantly gaining speed.

Retirement contributions are temporarily suspended during this process; the reason being you will have more money to eradicate debt. However, it is recommended you not suspend retirement contributions for more than two to three years. At that time, you can invest some of the funds you are applying towards debt back into your retirement account.

Snowballing debt is a good method for debt relief because the quick results help people stay the course. You might save some money in interest charges if you payoff the highest interest rate debt first, but you might backslide into more debt as well. Regardless, eliminating your debt takes financial discipline.