Keys to paying off your debts

The snow ball method

When the financial crisis hit in 2008, Spanish families had accumulated over €960 billion in debt. The debt gradually improved during the crisis until 2017, when the figure stood at €3.063 million (according to the National Statistics Institute). This figure almost quadrupled last year, reaching €14,8 billion.

This can be interpreted in two ways: positively and negatively. The first interpretation is that banks have started lending again, while the second suggests that families have started to go back into debt. What's certain is that its easy to fall into a spiral of debt, but much harder to get out.

If you find yourself in this situation, you must understand from the very beginning that there are no miracles. However, there are tools that can help you to manage and reduce your debts. At BBVA, we want to explain the snowball method (or waterfall method), a system designed to help you manage this difficult task.

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The snowball method

The strength of the debt-snowball method lies in eliminating the smallest debts first. In other words: it is based on allocating extra money to pay off the smallest debt first while also making minimum contributions to your other debts until the smallest one has been paid off. Then, the money used to repay the first debt will go towards paying off the second smallest debt. This repayment process continues until you are out of debt.

This has become one of the most effective methods for getting out of debt because, as it involves making small and simple payments, the results are easier and quicker to achieve and your motivation is boosted as you see there is light at the end of the tunnel.


How do you get started?

  • Make a list of all your debts: before you get started, you need to know what types they debts you have and the amount of each one. Also, for this method to be really effective, you need to organize your debts in order of size (from smallest to largest) to tackle them one by one.
  • Review the minimum monthly payments: when you have organized all your debts properly, you need to check what the minimum payment is for each one and update it if necessary.
  • Determine the amount of the extra payment for the smallest debt: after completing the previous steps, calculate how much extra you can set aside to paying off the smallest debt. It is important to allocate as much as you can. As a result, the smallest debts will quickly dissappear.
  • Repeat this formula until you have paid off your debts: this is known as the snow ball method as the debts increase in size gradually. Therefore, once you have repaid the full amount of the smallest debt, you move on to the next debt and so on until you have paid off everything.
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Greater control over your expenses

At BBVA, we are aware that miracles do not happen. However, we also know that it is not impossible to get out of bad economic situations. One of the keys to achieving these types of objectives is being well organized. Thanks to the technological revolution, today there are multiple apps that help people to pay off their debts and save.

One example is My everyday operations, which helps you to stay on top of your finances. It is intuitive, easy to use, and displays your income and expenses sorted by category, which makes planning and decision-making easier when saving. You also have Projected transactions, a feature that shows your upcoming income and expenses for the next two months. This helps you to better manage your money and achieve your main goal: getting out of debt.

The app also gives you access to Bconomy, a tool that makes saving easier by enabling you to analyze your spending in detail and find out where you can make cuts. If you are thinking about saving, the BBVA app can be a great ally.

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