Sunday, December 16, 2012

Get Rid of Debt Through the Snowball Method

If you are one of the lucky few with a steady income to pay off the minimum of their debts, you can possibly adapt the Snowball Method. This is a debt payment approach that will point you towards paying the debt with the smallest balance first. It is not like the Avalanche Method that prioritizes the high interest rate credit obligations.

Financial experts like Dave Ramsey prefer the snowball method because it has the most success rate compared to the other. Since the debtor is prioritizing the debt with the smallest balance, the morale will be boosted much earlier through the satisfaction of a debt completely paid. In comparison, the other method may take longer since the concentration will be on the debt with the highest interest and may or may not be the one with the smallest balance.

The belief that the early taste of success provided by the snowball method has a higher chance of motivating the debtor to go on and work on the next debt. It provides more psychological benefit in putting the right attitude and perspective into the debt relief effort. It will definitely be slow going at first but it builds up momentum as more debts are paid off.

To use this debt payment approach, you need to list down all your debts (literally!). Include the amount of debt owed, the creditor, the remaining balance, minimum payment, interest rate and other fees and charges. Arrange the debt from lowest to highest - the topmost spot is given to the one with the lowest remaining balance.

After you have listed down everything, get your monthly income, remove all the basic necessity expenses (food, rent, utilities, clothing, transportation, etc) and you will get your disposable income. This is what you will divide among all your debts. Distribute that income to pay off the minimum of all your credit obligations. Whatever is left will be added to the debt on the topmost part of your list. When that debt is paid, you will get the amount allotted for that and you will add it all to the second debt on the list. After completion, you will add the payments from the first and second debt to the third - until you have fully paid all your debts.

Some people prefer the other payment method because the idea of tackling the high interest debt first will lower the total interest that they will end up paying. However, this will only prove to satisfy the logical thinkers and those who have the right amount of discipline and perseverance. But if you think that you need the early motivation, you should be safe with the snowball method.

If you wish to see other options, go to National Debt Relief to compare other debt solutions. You can choose between debt management, debt consolidation loans, debt settlement and bankruptcy. Talk to a debt relief expert with no obligations - the initial consultation is always free.

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