Final answer:
The Debt Snowball methodology is a strategy used in personal finance to pay off debts by prioritizing the largest debt first.
Step-by-step explanation:
The Debt Snowball methodology is a strategy used in personal finance to pay off debts. It suggests paying off the largest debt first, while making minimum payments on other debts. By focusing on the largest debt, you can gain a sense of accomplishment and motivation to continue paying off other debts.
For example, let's say you have three debts: $5,000, $10,000, and $15,000. Instead of paying off the debt with the highest interest rate, the Debt Snowball method advises you to tackle the $15,000 debt first, even if it has a lower interest rate. Once it is paid off, you can move on to the $10,000 debt, and finally the $5,000 debt.
This approach can be effective because it helps you build momentum and confidence as you eliminate debts one by one. However, it's important to consider factors such as interest rates and payment deadlines when choosing a debt repayment strategy.