If you are ready to get out of debt, you may be considering using the debt snowball repayment strategy to do so. The debt snowball method increases motivation by making quick profits while helping to reduce your overall debt burden. Here’s what you need to know about using the debt snowball if your loan mix includes some at 0% interest.

What is the debt snowball method?

The debt snowball strategyDebt repayment focuses on paying off debt starting with the smallest balance and working toward the largest. You can think of it as making a snowball and putting it on top of a hill. As the snowball begins to roll (begins to pay off the debt), it will gradually pick up speed and the snowball will get bigger and bigger until it finally lands on the bottom (where all the debt is repaid).

Using the debt snowball strategy is simple. You will need to:

  1. Create a list of all debts and the amount you owe (excluding your mortgage).
  2. Order your list of debts from the lowest amount owed to the highest.
  3. Find out how much money you can afford to pay off the debt after accounting for all the minimum payments.
  4. Start putting any excess money toward your smallest debt while continuing to make the minimum monthly balance owed on all other debts.
  5. Once the smallest debt is paid, move everything you were paying on that debt to the next smallest debt while still keeping the minimum monthly balance owed on all other debt.

The debt snowball method is designed to give you a quick profit. When you pay off the smallest debt quickly, it helps you stay on track and excited to continue with your debt repayment plan.

When to pay off 0% interest loans on your debt snowball

Since the debt snowball strategy only considers the amount owed on the loan, the interest rate will not influence the order in which the debt is paid. When you list all the debts for your snowball, you will only consider the amount owed. Then, starting with the smallest amount owed, you’ll start to snowball your ballpark, regardless of how much interest you owe on each debt.

This is not the case if you opt for another popular method of debt repayment, the flood of debt. The flood of debt method begins by listing the loans from the highest interest rate to the lowest. That would put a 0% interest loan at the bottom of your payment list.

Regardless of which payment strategy you choose, make sure you understand the fine print about whether and when your interest rate changes from 0% to a higher rate. When introductory offers expire, the interest rate can increase significantly.

The bottom line

If you plan to go the debt snowball method, you don’t need to worry about finding a place for 0% interest loans. However, if you want to save as much money as possible by attacking higher interest rate debts first, you will need to go with the flood of debt payment method, or consider a hybrid method that deals with large and small balances. differently.

Brooke joly

Brooke is a freelancer who focuses on the technology and financial wellness sectors. She has a passion for all things wellness and spends her days cooking healthy recipes, running and snuggling with a good book and her furry babies.

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