In consumer debt management, what does "snowball" repayment entail?

The "snowball" repayment method is a debt management strategy that focuses on paying off debts from the smallest balance to the largest. This approach encourages individuals to tackle their debts in a way that is psychologically rewarding. By paying off the smallest debts first, borrowers can quickly eliminate their obligations, which can provide a sense of accomplishment and motivate them to continue working toward becoming debt-free.

This method builds momentum as each small debt is eliminated, much like a snowball gaining size and speed as it rolls downhill. The strategy relies on the idea that small wins can create a positive feedback loop, encouraging continued progress in debt repayment. As smaller debts are paid off, the individual can then redirect the payments they were making toward those debts into tackling the next smallest one, potentially accelerating the repayment process over time.

In contrast, other methods like paying off the largest debts first might not provide immediate psychological rewards, and making minimum payments on all debts can prolong the overall repayment period. Consolidating all debts into one payment may simplify finances but does not directly address the motivational aspect of debt repayment that the snowball method leverages.