Investopedia

Continue to Site »

Snowball

Filed Under » ,
Dictionary Says

Definition of 'Snowball'

A method of efficient debt repayment in which the debtholder initially devotes only enough funds to cover the minimum payments on each debt, after which any remaining available funds from the debt repayment budget are spent on an additional payment to the debt bearing the highest interest rate. Once the debt with the highest interest rate is completely paid for, subsequent extra debt payments go toward the next highest interest-bearing debt. This process continues until all the debts are paid off.
Investopedia Says

Investopedia explains 'Snowball'

For example, let's say an individual decides to spend $500 every month on retiring his three sources of debt: $1,000 worth of credit card debt (annual rate of 20% interest), $1,250 of car payments (annual rate of 6% interest) and a $5,000 line of credit (annual rate of 8%). Each has a minimum payment of $50.

If the person decides to use the snowball method of debt repayment, he will spend a total of $150 on paying each debt's minimum payment ($50 x 3). The remaining $350 will be spent on a payment toward the highest interest-bearing debt - in this case, the credit card debt. Once the credit card debt has been completely paid for, the extra payment will go toward retiring the second-highest interest bearing debt (the line of credit), and the loan with the lowest rate of interest (the car loan).

Related Video for 'Snowball'

Articles Of Interest

  1.

    How To Reduce Holiday Debt

    Holiday expenses can drown you in debt. Find out how to avoid this festive spending hangover.

  2. Take Control Of Your Credit Cards

    The plastic in your wallet doesn't have to hurt your finances. Learn how to manage it responsibly.

  3. Credit, Debit And Charge: Sizing Up The Cards In Your Wallet

    Not all plastic is equal! Learn the difference between the three kinds, and how each can affect your finances.

  4. Understanding Credit Card Interest

    Paying these rates can impact your disposable income and your investment returns.

  5. Digging Out Of Personal Debt

    Find out why good intentions can put consumers in an even bigger hole than before.

  6. Prioritizing Debt

    Debt affects your finances and your life. We show you how to free yourself from this financial ball and chain.

  7. Stop Keeping Up With The Joneses - They're Broke

    Conspicuous consumption could be robbing you of future wealth.

  8. Buffett And Goldman Sachs Do Sweetheart Deal

    Goldman Sachs announced March 26 that it will issue to Berkshire Hathaway in October the number of shares equal to Warren Buffett's profit from the 2008 warrants he got to purchase 43.5 million ...

  9. Bloated Budget? How To Trim The Fat

    Blood, sweat and tears should belong in the gym, but your money deserves some training time too.

  10. Shuffle Away Your Debt With Balance Transfers

    This option can save you big bucks, but only if you watch out for rates and fees.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  2. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.

  3. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.

  4. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.

  5. Consequential Loss

    The amount of loss incurred as a result of being unable to use business property or equipment.

  6. Lease To Own

    An arrangement where an individual enters into a lease agreement with an owner with the inclusion of a clause that typically gives the individual the right, but not the obligation, to purchase the item leased at a predefined price and time.
Trading Center