The snowball method
Start with the smallest loan amount first and finish with
the largest. By choosing this method, you’ll be
motivated to see that each loan disappears faster.
September 7, 2023
Monica Amundsen Holen
Have you been turned down for refinancing?
In some cases, you find yourself in a situation where it is not possible to refinance, and then you have to think about alternatives. There are many ways to pay off loans, and very often it turns out that the most common way is often not the best.
As a general rule, you adhere to the repayment plan that the banks have set. If you do that, it’s hard to reach your goals and hard to stay motivated.
The snowball method is a way of paying off debt that proves to be both faster and more motivating. Throughout all my years in the banking world, I have seen several examples of customers being able to pay off debt they didn’t think was possible by doing it this way.
It is easy to think that the snowball method seems like a bad solution for paying off debt. Wouldn’t it be a better solution to start with the most expensive loan, i.e. the one with the highest interest rate?
Well, if you do, it will actually be cheaper overall, but the problem with starting repayments on the loan with the highest interest rate is that it’s so terribly easy to become unmotivated.
The reason for this is that it takes an awfully long time to progress if the loan that is number 1 is NOK. 450.000,- . It’s much more motivating to be able to get rid of four small loans in a short space of time.
To use the method, you must do the following:
- Sort all your debt items by the size of the loan.
Leave the smallest loan at the top as number 1. - Pay only the minimum amount on debt item 2 and below.
- Pay as much as you can on the debt item listed as number 1
- When you have paid off the loan listed as number 1, you have freed up e.g. NOK 500.- per months You can use this NOK 500 as an additional payment on the loan that now moves up to 1st place on your list. You must still pay as much as you can only manage on loan number 1, and only the minimum amount on loan number 2, etc. Now you suddenly have one less loan to deal with.
If you have any questions, or need some good advice, you can call me on 926 62 904. or send me an email at monica@eiendomsfinans.no
← Monica Amundsen Holen
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