The Snowball Method

A popular method for paying down debt is known as the snowball method, introduced by Dave Ramsey. This method focuses on paying off the smallest debt to the largest. Once you’ve paid off one debt, you take the money you would have paid on that small debt and apply it to the next smallest. Keep doing that, and like a snowball, it’ll add up to paying off your debt in full. Using this method allows you to see the progress you’re making and encourage you to keep building that snowball.

Studies are showing that since the Pandemic began, consumers are paying down credit card debt. The flip side is that other types of debt are increasing. We can only speculate the reasons why credit card reduction has occurred. We know that many people are cash-strapped. However, a large percentage of workers earned more on unemployment than at their regular jobs. Plus, there were stimulus payments. Small businesses were also able to get grants and loans. Perhaps this is how this credit card reduction has occurred.

Snowball melting on pavement

Let the Snowball Melt

The snowball method sounds great and can work for some people. But what if you have an overwhelming amount of debt and it doesn’t work for you? You may consider bankruptcy as an option to melt away the snowball instead.

If you’re burdened by overwhelming debt, I challenge you to consider your essentials. Shouldn’t debtors consider paying off things like a car or maybe even a home loan (if it’s not too large)? Perhaps these would help your family more than paying down credit card debt. You can eliminate credit card debt in bankruptcy, but not car loans.

Another consideration – just hold on to the money. Lack of savings is the leading cause of running up credit card debt in the first place. In many cases, debtors who file bankruptcy can keep up to $13,900 per debtor – in a joint case – that doubles to $27,800. Exemptions are complicated. An attorney needs to determine what exemptions apply in your particular case, but this is possible in many cases.

Certain types of money deposits have their own exemption. Examples are:

  • IRA and 401k – exempt up to $1,362,800 per person (the exemption amount will update in 2022)
  • Stimulus funds – totally exempt
  • Health savings accounts – exempt
  • Pension/retirement funds – exempt until paid
  • Annuity – exempt with some limitations

I like Dave Ramsey and believe his method is good for many people. But some people are not confident about their future income. These are unstable times, and even long-time workers are being laid off. Instead of building up the snowball, it may be best to melt it down. Filing bankruptcy may be able to help you melt away overwhelming credit card debts and give you the chance to focus on the essentials that remain.

Most bankruptcy attorneys offer free consults. If your situation is unstable, you may want to consider professional advice on handling paying off debt.