I've heard a lot of buzz lately about the Debt Snowball method of paying off your debt. Curiosity finally got the better of me and I decided to do a bit of research. Here is what I discovered:
What is debt snowball?
Debt snowball is a process by which you list all your debts from lowest to highest and attack the lowest debt first. You need to pay minimums on each bill except for the lowest one. Pay as much as you can towards the lowest debt so that you can get rid of it as soon as possible. Next, you move on to the second lowest debt and the process continues till you are free from debt.
What are the advantages of debt snowball?
According to personal finance guru Dave Ramsey, “Personal finance is 20% head knowledge and 80% behavior”. Debt snowfall is based on this view. It rightly assumes that paying off smaller debts gives a sense of victory which motivates people to pay off all other debts.
It is relatively easy to pay off bigger debts using debt snowball method. Here you clear the smaller debts first. So by the time you reach the bigger debts, the extra amount that you can pay towards them increases. Consequently, it is possible to eliminate them quicker.
Another advantage of debt snowball method is the reduction of the total amount owed to creditors in a single month. This can save your neck in case you encounter an unforeseen situation like loss of job or medical emergency.
Is debt snowball the right choice for you?
Debt snowball is a simple debt reduction method which is suitable for people who have a wide range of balances. It gives you tangible results and motivation which is missing from other similar approaches. While is it most effective for people who need some encouragement in the form of quick results, individuals with a lot of patience will benefit more with avalanche approach because it is cheaper.
Debt snowball can certainly help you to climb up from the trenches. However, you should remember that it cannot make you debt free with the wave of a wand. But if you stick to it till the end then your patience will be certainly rewarded.
What if you can't even keep up with the minimum payments?
The debt snowball method sounds like a great idea, and for a lot of people it would make sense. But what do you do if you can't even keep up with the minimum payments?
If you need to get your minimum payments reduced, you should consider a Debt Consolidation program. A Debt Consolidation program works along the same premise, but it also reduces your interest rates and monthly minimum payments!
If the payments of a Debt Consolidation program are still too high, then it's time to consider Debt Settlement. A Debt Settlement program will significantly lower your monthly payment and eliminate your debt for less than what you owe.
It's hard to decide which approach is your best option. If you would like a free analysis of your current financial situation and some guidance in determining which option is right for you, our trained Solutions Specialists are here to help!
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What are your thoughts on the Debt Snowball? Have you tried this method or are you considering it? I'd love to hear from you. Please post your thoughts or questions in the comment form below!
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