Final answer:
The debt snowball method involves ranking debts from smallest to largest and focusing on paying off the smallest debts first while making minimum payments on others. This approach can provide psychological motivation through early victories and potentially save money on long-term interest.
Step-by-step explanation:
The key feature of the debt snowball method is ranking your debts from smallest to largest so you can pay off the smallest one first. According to this strategy, you make minimum payments on all your debts every month, but then you focus any extra available money on paying off the smallest debt until it's completely paid off. Once the smallest debt is gone, you move on to the next smallest debt, applying the same tactic—pay the minimum plus any extra funds you can afford. This method is favored for the psychological boost it provides, as it allows quick wins which can motivate an individual to keep paying off their loans.
It's crucial to understand that with any form of debt, such as credit cards, you will incur interest each month you carry a balance. This means that the longer you take to pay off the principal amount you borrowed, the more you will end up paying in the long run. Therefore, employing a strategy like the debt snowball can not only provide emotional encouragement through small victories but also can save you money on interest payments in the long term.