Debt Snowball Method Tips
Melt Your Debts Away Using the Snowball Method
If you’re being smothered by debt and kept awake at night with worry, melt those debts away with the snowball method of debt repayment. As a snowball rolls downhill and gets bigger and bigger, your mound of debt will get smaller and smaller. Get rid of nearly $20,000 of debt in less than three years.
Your first task is to make a list of every debt you owe, the minimum payment and total amount. Order the list so the debt with the smallest total is first. List the rest of the debts in descending order until it ends with the debt you owe the most on. The idea is to pay the minimum amount on each debt on time, but pay the most on the debt with the smallest balance so it’s paid off first.
Paying off the smallest loans first gets rid of creditors. It gives you a sense of accomplishment as well. Your credit report will show more accounts paid in full. It will also show your outstanding balances shrinking. So get started.
Take a hard look at your spending and cut back everywhere you can. The more you have available to pay on your debts the faster they’ll disappear. Let’s say that you come up with an extra $250 a month. It may not sound like much, but it’s enough.
If your lowest balance is $1,750 dollars you’ll have it paid off in 7 months. Take that $250 plus the minimum payment on the second largest debt and start paying it down.
If the second debt has a balance of $3,000 and a minimum payment of $150, you’ll have it paid off in 7.5 months because you’ll be paying $400 per month.
Now the snowball really starts to roll because your next debt will have a payment of $400 — $250 plus $150 — in addition to the monthly minimum payment. If the debt is $5,000 with a minimum payment of $250 you’ll be paying $650 a month and that $5,000 will be gone in 8 months and you’re only into the program by 22.5 months.
That last mega debt of $10,000 looks like it’s insurmountable. The minimum monthly payment alone is $500. But don’t worry, you not only have the $500 a month to throw at it but the additional payments of $650. That debt will be melted in less than nine months. Your debt load of nearly $20,000 is gone in less than three years.
Calculate exactly how your debts will drop by setting up an Excel, or other spreadsheet program, with your monthly payments, interest rates, and total debt. You’ll be able to see how the debt decreases by changing the monthly payments. How your credit card company, or creditor, calculates the minimum monthly payment should be specifically explained on the statements. It’s usually the interest charges on the outstanding balance and a principal payment of two to five percent of the amount owed. If it’s confusing call the creditor and get it clarified.