One of the most effective debt reduction methods is the snowball method.

This popular way of reducing debt has several benefits for anyone wanting to get rid of any outstanding loans and credit cards.

Apart from dropping your debt levels and balances quickly, the snowball method also helps you improve your credit score and teaches you to gain control your spending habits and learn to budget easily and effectively.

Here’s how it works.

Snowball Debt Reduction Method Step One:

List all your outstanding debts on a sheet of paper. Write down the creditor’s name, the amount of interest charged and your minimum monthly payment. Make your list so that each debt is shown in order of size – smallest to largest. Be sure to check your statements on each account to be sure you’re working with the right interest amounts.

Snowball Debt Reduction Method Step Two:

Look at your current spending patterns carefully and see where you might be able to re-allocate a few dollars toward debt repayment instead of treats.

For this example let’s assume you sacrifice one cup of coffee per week and cut out $3 of spending per week. It’s such a tiny amount of money you won’t miss it if you spend it. So go ahead and buy your regular coffee every day except for one day. You only need to sacrifice one cup per week.

That gives you $12 per month extra to add to your snowball debt reduction plan. It doesn’t seem like a lot of money, but you’ll be surprised how quickly it can add up toward reducing your debts.

If you’re really determined to reduce your debt, see if you can find more available cash each week fro your spending habits. If you can, use this extra money toward your debt reduction plan.

Snowball Debt Reduction Method Step Three:

Take a look at your list of outstanding debts and select the one with the smallest balance. You’re going to work on reducing this smallest debt first. Don’t worry about which interest rates are being charged on which accounts.

The point of working with the smallest debt is to increase your confidence that you really can pay off a debt on your own. It helps to keep you motivated when you can see results.

Keep focused on making payments on this smaller debt until the balance is down to zero and then close the account. Don’t charge any other purchases to this balance. You want to pay it off and get rid of it.

Remember in the previous step we assumed you’re sacrificing just one cup of coffee each week at $3 per cup? This means you’re paying an extra $12 every month on top of your normal payment. Add up what this brings your new monthly repayment up to - and then divide this monthly payment by 4.

Round up your new weekly payment to the nearest dollar and begin paying this amount every single week. Don’t be tempted to miss a week. You can schedule online payments to come out of your account automatically if you don’t trust yourself to remember to make the payment manually.

Once you start seeing real debt reduction results it’s often tempting to look more closely at your budget and start to cut other areas of your spending too. If you can find even a couple of extra dollars each week to put more money toward this debt then do it. $2 might not seem like much but it really adds up when you consider the bank can’t charge you interest on that money and it’s helping in the long run.

Snowball Debt Reduction Method Step Four:

When you’ve managed to completely reduce your first debt down to zero don’t be tempted to stop there. You should now have the amount of money you were paying off your first debt spare each week. Put this whole amount on top of your payment for the next debt in line.

Your new payment on the next debt is now the minimum you were paying off it before plus the amount you were paying on the debt you already cleared.

Some lenders require notification of how you want the extra payments allocated. This means you may need to call your lender or credit company so that they apply each of your payments directly off the principal. Don’t be afraid to call and ask them.

Snowball Debt Reduction Method Step Five:

Hopefully by now you would have begun to create a new, positive repayment habit. You should start seeing some real results if you’ve stayed focused and disciplined.

When your next debt in the line is down to a zero balance and the account is closed, add the amount you were paying each week into reducing the next debt you have and keep repeating this process until your debts are more manageable. You should even find that your budget is almost automatic by this time.

You will be surprised at how quickly you can reduce your debts with this simple snowball method of debt reduction. It’s fast and it’s effective - so stay focused on your goal and you’ll get rid of your debt once and for all!