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Many ways to escape debt spiral. Introducing the snowball debt reduction strategy

Updated: Jun 4

snowball debt reduction strategy
Escape the debt spiral using the snowball debt reduction strategy

SMH Money 11th Feb 2015

Financial planner Peter Horsfield is a big fan of the Snowball method aka the snowball debt reduction strategy.

He gives the example of a couple who had multiple debts ranging from $1,300 on a credit card to $100,000 on a home loan. He asked them to direct 10 per cent of their gross income, or $750, towards debt repayment, starting with the smallest debt. When that debt was paid off the trick was to add the amount they were saving ($300 per month) to the $750 and direct that towards paying off the next debt. "You lather, rinse and repeat until all your debts are paid off," he says.

The Snowball debt reduction strategy method starts with paying off the smallest debt first, then tackling larger and larger ones. Why?

"If someone has got a lot of smaller debts that can lead to them feeling overwhelmed especially when they are dealing with several companies and lenders," says Peter.

Paying off one debt quickly creates a sense of positive momentum and encourages you to keep going.


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