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How To: Get out of debt using the Snowball Method

Credit card debt is wrecking people’s lives as we speak. The lure of the “easy money” ruins a lot of families because credit card holders are too weak to refrain from buying yet another thing they really don’t need. So what can you do if you are staring in the face of debt – debt that could result in a bankruptcy claim or a divorce because money issues are so bad in your family no one can handle them?

Snow Smiley FaceThe answer is: use the snowball method

Before I go into explaining how this works, let me clear up an important fact that seems to cycle through people’s minds. Contrary to popular belief, it isn’t easiest to get out of debt by paying off your highest interest rate debt first. This is what many debt-ridden consumers tend to believe, but they are wrong (at least partially because the math proves us otherwise).

The problem with the “math supported scenario” is that people end up giving up along the way because they don’t see instant results. If you are stuck with thousands of dollars of debt and all you do is skimp money, the last thing you want is to wait for several months until you see your debt twiddle.

Instead, pay off your smallest debt first (this is what is referred to as the snowball method).

How to establish a debt snowball method

With the debt snowball method, you put everything on hold financially except the minimum payments and of course your utility bills and essential living expenses (and no, that does not include a subscription to cable TV). Scrape together everything you can.

However, before you start minimizing your financial expenditure, try and save money for an emergency fund. Speed is of the essence here since the interest clock is ticking.

Assemble all of your debts and create a spreadsheet listing them in order of size. Start with the smallest debt first and work your way toward the biggest (most likely your mortgage). This is not the time, nor the place to worry about interest rates as the idea is to start paying down your smallest debt as soon as possible, then move on to the next, and so on.

The snowball starts rolling…

Begin by paying the minimum on all of your debts except for the first one. Pay as much towards that each month as you can. The moment your first debt is paid off – which shouldn’t take too long if you are dedicated – apply that same payment amount to the next debt on your list. Once you’ve paid that off, apply that whole sum to the next one. So, $25 becomes $75, which becomes $125 and so forth.

In a short period of time, your snowball will gather pace and you will feel a massive sense of achievement. This will drive you to keep going.

Seeing results is psychologically important. It helps us to stay focused and result-driven.

…can you feel the rush of wind in your hair?

As you pay off more and more small debts your snowball will gather massive momentum. You will feel elated and actually start believing that is is possible to be debt free.

But it gets even better than that. If the exhilaration of the wind in your hair isn’t enough, how about the fact that you will start to compound your remaining payments as you pay off more of your debts. Money is funny that way!

Every single dollar you pay off your existing debt will help to compound the remaining amount. The more you pay off, the quicker your debt will shrink until there is…

… nothing left to pay, finding yourself debt free.

As long as you keep adding the amount you paid to the prior debt to the next debt, you will see results with the snowball method very quickly. It will be the start of the rest of your life and hopefully re-educate you on money management forever.

This guest post is written by Timothy, a personal finance writer for Credit Card Finder, which specialises in providing credit card comparisons and information to help consumers get into a better financial situation. For more information on ways to reduce your debt, visit the Credit Card Finder website or subscribe to their RSS feed for additional practical articles.


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