The Snowball Method of Debit Reduction

If you find yourself deeply in debt then you need to find a repayment method that you can stick to. There are many repayment methods that will reduce your debt, and eventually leave you debt free. But any method is only going to prove to be worthwhile if you stick to it until the end.

One technique that has a proven track record of reducing debt is the Snowball Method. The was named by Dave Ramsey, and over the years this method has shown itself to be an effective way of reducing peoples debts.

So, how does the Snowball Method work? The Snowball Method works by targeting the small debts first. Make a list of all your debts and put the smallest one at the top of the list, followed by the next smallest etc., until the largest one is at the bottom.

Write down the minimum monthly repayments for each debt. You will have to continue to meet all of these. Make a budget and work out where you can save some money, and put any 'extra' money into paying off the smallest debt. This is on top of the minimum payment.

People who do this, find that they are often spurred on to continue with this method, as they see the smallest debt being reduced very quickly. When the smallest debt is paid off, then take all of the money that you were paying towards it, and add it to the minimum repayment of the next smallest debt. Do the same until it is paid off, and carry one down the list. The advantage to using this method is that is it satisfying to see your debts being paid off at a fast rate.

The disadvantage to using this method is that you could end up paying more in the long run. This is because of the interest payments. As the smaller loans get paid off, you are only paying the minimum amount off the larger ones. This means that you are still paying interest on a large amount.

The normal strategy would be to pay off those loans with the highest effective interest rate first, to minimize your final cost. Loans that have interest that is tax deductabe, may have a lower effective interest rate, that the stated interest rate.

However, many people find that paying the large debt of first is harder to do. This is because although you are using all the money that you can to pay off the debt, because of the interest charges, it does not get paid off very quickly.

You need to decide what method works for you. The most important thing is to make sure that you choose a method that you can stick to.




Stop Debt

Real Estate

Thanks! I was finally able to purchase a home!