Debt Snowball - A Simple Method Of Getting Out Of Debt

By Martin McAllister

More and more people are unfortunately finding themselves sinking deeper into the debt mire. Many people look for outside help to tackle their debt problem, perhaps through the Citizens Advice Bureau, or a firm specialising in negotiating with creditors to lower the monthly payments. Others might take out an IVA (Individual Voluntary Arrangement) or in extreme cases might even consider declaring themselves bankrupt. However, all these solutions will have a major, negative effect on your credit rating.

However, by using a recently introduced system of managing debt repayments, people can actually help themselves to tackle their debt problems without damaging their credit rating. The system, called the Debt Snowball, has been devised by Dave Ramsay and goes against the grain of most of the advice given by self-help books and even some financial advisors.

Many debt counsellors advise paying more money towards the debts carrying the highest interest rates first, with the lower rate debts receiving the minimum payments. However, in many cases the debt that has the highest interest rate also has the highest amount outstanding and it can feel that no matter how much money you plough into clearing the debt, it never seems to get lower. And by paying the minimum amounts to your other debts, you'd be hard pushed to make a dent in them too!

However, according to Dave Ramsay the best method is to create a debt snowball by actually paying off the smallest debt first! The method works by setting aside a fixed amount of money that will allow you to cover all your debts with a little extra left over. Ramsay advises that you pay the minimum payment to everything other than the smallest balance, where you devote whatever cash you have set aside towards the debt. Once that debt is clear, add the payment onto the minimum payment for the next debt and continue the minimum payments for the others. As each debt becomes cleared, the snowball of cash you can pay towards your debts get bigger; and as you get towards the bigger debts, the snowball will allow you to pay more off the debt and clear it off quicker.

The system works, regardless of who you have debt with: banks, building societies, credit card issuers or even debt collection agencies, such as Capquest, and before long you'll see debt being reduced far more than you would if you tackled your bigger balances.

So, if you're struggling with debt, but don't want to go down the debt consolidation or IVA route, a debt snowball might be the answer; and there are many websites available which can provide calculators to help you work out the size of the snowball you'll need to help you get out of debt.

Capquest Debt Recovery is a UK-based company, specialising in the management and recovery of overdue and delinquent consumer and corporate debt.

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How Debt-Snowball Technique Works in Paying Off Credit Card Debt

By Cornie Herring

Credit card debt is serious financial burden to everyone who faces it. The only way to get rid of it is to pay it off. There are many ways or techniques that can be used to get rid of credit card debt and one of them is called debt-snowball technique. Let's explore how the technique works and under what condition, this solution can be applied to resolve debt problem.

Debt-snowball technique involves paying the extra cash toward smallest balance first and works toward the largest debt owned. The technique has gained more recognition recently because it is being used by many financial and wealth experts to help their clients to handle revolving credit, especially in getting rid of credit card debt. Moreover, survey results show that the debt-snowball technique is among the most favorable credit card payment solution as most people have a tendency to want to take care of small, easier-to-handle-of things first.

The basic three steps involved in debt-snowball technique are as follow:

Step 1: List down in ascending order for all debt owned from the smallest to the largest amount. If there are two debts have the same amount, then debt with higher interest rate should be listed on top of the other one, which has lower interest rate.

Step 2: Calculate the amount of money required to pay the minimum of all debts. Determine how much extra cash that can be used to pay toward the smallest balance. Make the minimum payments on the rest of debts and applied the extra cash toward the smallest balance until it is completely erased.

Step 3: Once the smallest debt is paid off in full, do not alter the monthly amount used to pay debts, but apply the payment used to pay the first debt (the minimum payment plus the extra amount) toward the next-lowest balance. Repeat the process until all debts are being cleared.

Psychologically, by using the debt-snowball technique you will see debts go off faster since smaller balances are easier to be paid off under the this technique. This technique works well if the smallest debt has higher interest rate while the larger debts carry lower interest rate. But, if it is the other way round, which the smaller debts carry lower interest rate, while the larger debts have higher interest rate, debtors will need to pay more interest at the end.

This debt-snowball technique is also a preferred solution for people who are less aggressive, but hoping to see their debt being erased fast. Many people, especially those who have tried to pay their high interest rate or largest balances tend to give up after some time because they felt like they were never getting anywhere. On the other hand, the debt-snowball technique provides the psychological lift of pinging debts off in rapid succession by getting rid of the smallest balance first that motivates them to work toward getting their debt settled.

Summary

Debt-snowball technique is a debt payment solution that starts by paying the smallest balance first. You remain the amount used to pay your total balances throughout the process of paying of the balances owned. Any extra cash that you want to use to make payment, always throw it to the smallest balance first.

Visit Cornie Herring at http://www.studykiosk.com/CreditBasics/ to find more debt relief resources on the options available for you to get rid of debt. Learn from Cornie on how to find extra money to pay your credit card debt.

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Using a Debt Snowball to Eliminate Debt

By Lynn Reynolds

Of all the personal debt solutions, the debt snowball method stands out as the one that anyone can relate to and apply to their own lives. You are standing on top of a snowy hill and you make a little snowball. This snowball is what you can pay on your credit card bill each month. It's not much. You might wonder if it is good enough. But don't worry about that. Instead, send it down the hill. As it rolls down, it gains speed and it picks up more snow as it goes. Soon, your little snowball isn't so little. When it gets to the bottom of the hill, you have a large snowball that you can apply to your monthly debts.

The debt snowball method for eliminating debt is perhaps most famous for its recommendation by the financial guide Dave Ramsey. It's accessibility makes it appealing to those who have tried more complicated means of debt elimination but failed.

The first step is to list out all of your debts. There are two different ways you can order your list, each with its own advantages and disadvantages. The first way, and the way recommended by Ramsey, is to list your debts in order from least to greatest. Next to each one, write the minimum payment each month.

For example, you have a Sears card that you owe $50 on, and your minimum payment is $5.00 a month. You also have a Visa with $643 owed and a monthly payment of $52. Finally, you have a Mastercard with a balance of $2,430 and a monthly payment of $100.

To get started, pay the minimum amount monthly on each of your debts. For the first debt, find extra money so that you can pay it off as soon as possible. Eliminate un-necessities in your life, sell some possessions, or get a second job. Instead of five dollars a month, you discover that you can afford to pay twenty-five dollars. Pay that each month and you will have that card paid off in two months time. An important note: do not spend any money on your cards while you are doing the debt snowball. Pay for things in cash or use your debit card, not a charge card.

At the end of the two months, you have an extra monthly twenty-five dollars freed up. Apply that to the next smallest debt. In the sample list, you will now be paying $77 a month on your Visa instead of the $52. Repeat this process until you have eliminated all of your debt. This process might take years, but can be sped up if you find ways to increase your income while decreasing your spending. Any "extra" money can be applied to the snowball.

The other way to list out your debts is to list from the highest interest rate to lowest interest rate. This will save you money and make your debt elimination go faster. Some people who use this method, though, get discouraged because it does take longer to see the results. If you use this method but find yourself wondering if you'll ever pay off your debts, pay a small one of before returning to the high interest loan. When applying the debt snowball, your focus and determination are the most important things. With those you will find yourself paying off your debts no matter how you have them listed.

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Eliminate Debt and Live Life

By Ted Batron

The faster we are able to eliminate our debt, the happier we will be. This seems like a pretty basic concept. But eliminating debt is sometimes easier said than done. Lets go over a few tips for getting rid of or drastically reducing credit card debt to make our lives easier.

When we carry a large number of credit cards, it is just human nature that we use them. When I was in the debt mode, I used to actually think to myself "wow, I have 50 thousand dollars in my pocket". That was a pretty destructive thought process. If you don't incur the debt, your better able to save for the future and have money ready when you need it. Change the thought process, and change the habits.

There are no friends in the credit card companies. Removing your money from your possession is their only goal. If that sounds a little harsh, the truth is that this is war, and for the most part, the companies that offer credit in a predatory fashion, and that includes all of them, are the enemy. And they are winning.

Remember, being a little short because you made a purchase of something that you wanted or needed is one thing. Being short, and having the credit card companies drown you in increasing debt for years to come is much worse.

Mortgages and auto loans are areas where we want the best interest rates. If your consumer debt is too high, both of these areas will be difficult. If our consumer debt is really high, debt elimination programs may be necessary before we even buy things like homes and cars.

If you can avoid debt altogether, you have really dodged a bullet. A convenience card, or an emergency card is fine. I keep it at home in my desk drawer. It is used for emergency car repair, maybe new tires or other items I can't avoid purchasing. If you can afford your emergency expense in cash, then you are still better off. Debt elimination is not quit as easy as just avoiding the debt in the first place.

Destroy your credit cards, except for the one with the lowest interest rate. Begin a repayment plan starting with your highest rate card. If you get an offer to transfer your balance to a new card at a lower interest rate, take it. But keep on paying off the card even if you have to work more or spend less. Whatever you do, don't use the card!

If you have 5 credit cards, make the minimum payment on 4 of them. Make a higher payment on the one with the highest interest rate. When that card is paid off, apply that payment to the next card. Remember, to pay off a card, you must pay higher than the minimum payment.

Some card companies offer zero interest on balance transfers. Be careful, make sure its not a limited time offer. But if you get one of these, take it. Transfer as much as you can to the lower interest rate card, and then just don't use the card! You can eliminate your debt fairly quickly at zero percent interest.

Just think about how much less stressed you will be after you have eliminated your debt.

Ted Batron is a financial expert who specializes in debt counseling and custom debt elimination plans. He has developed a short eCourse that's a great primer for those who are ready for credit card debt relief and want to learn how to negotiate, eliminate and settle credit card debt at a 30-70% discount and become debt free. If you would like to know more about Ted Batrons "5 Debt Settlement Secrets You Should Know" eCourse, visit http://www.No-Debt.net

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