Debt reduction and elimination is an objective that almost every person in the world wants to reach. People who have enjoyed using credit cards are finally realizing the consequences of their actions and are therefore taking steps to solve their problems. People who want to accomplish the objective of total debt reduction and elimination often turn to experts for help.
Many professionals are available today to help people who want to get rid of their liabilities. These debt reduction and elimination services often analyze a client’s case and think up the best way to meet their objective. Often, these debt reduction and elimination companies will suggest different methods that a person can use to get rid of their obligations. One such method will be discussed in this article.
The meaning of the snowball method of debt elimination and reduction can already be deduced from its name. If you watch cartoons, then you might know what this means. A snowball, when rolled from the top of a hill, will gather speed and increase in size as it moves. This gives you an idea about what this method of debt reduction and elimination aims to accomplish.
The goal of this method of debt elimination and reduction is to eliminate your debts in a way that resembles what happens to a snowball. This means that it aims to help you start from paying off your small debts slowly, and working your way up to the big debts with increasing speed.
How is this done?
1) List all of your debts in order from lowest to highest – This will help you see your goal clearly and allow you to plan. Listing all of your debts will allow you to evaluate them in an orderly manner and this will enable you to plan your debt reduction and elimination strategy clearly.
2) Pay the minimum balance on all debts regularly – Creditors often set a minimum balance that you have to pay regularly on your debt. After you have listed down all of your liabilities, you need to commit yourself to paying their minimum balances regularly. This means that you will be able to slowly reduce all of your debts. However, this is not the main part of the snowball method of debt elimination and reduction.
3) Find out what is the extra amount you can pay – After you have made the minimum payments for all of your listed debts, try to find out if you can spend an extra amount to start paying off your smallest debt. This means that even though you will be reducing all of your debts, your smallest credit will be eliminated much faster than the others.
4) Repeat the cycle – After you have paid off your smallest debt, use the money you have budgeted for the minimum payments to pay off the next debt on your list. This means that the next debt will be accorded the following amounts:
a) The minimum payment for the debt
b) The minimum payment for the previous debt
c) The extra amount that you can afford
As you can see, the budgeted amount for each debt increases as each debt is paid off. This means that you will be able to pay off larger debts much faster; hence, the “snowball” effect. By using this method of debt elimination and reduction, you will be able to shave years off your payment schedule.