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Home | $10 To $20 | Debt Consolidator The Debt Snowball Method By: William Blake There are several methods that can be used when people want to systematically pay off their debts. One of the difficulties with debt management is that it can be hard to know which debts to pay off first or how to go about paying down various liabilities. There are several schools of thought to help people through this process, and one method that is gaining in popularity is the debt snowball method. The debt snowball method requires the borrower to first get their debts organized. This process begins by listing all of the debts you owe on a spreadsheet. Some borrowers choose to leave their mortgage off the list, since it's usually a much larger liability than other debts and can't realistically be paid off over a relatively short period of time. The list of debts you create should have payoff amounts, interest rates, and minimum monthly payments. The debt snowball method calls for debts to be organized based on the size of the outstanding balance. For example: Type of Debt Payoff Amount Interest Rate Minimum Payment Auto Loan 1 $20,000 5.9% $400 Credit Card $12,000 19.9% $225 Student Loan $8000 6.9% $115 Auto Loan 2 $5000 5.9% $260 In this example, you've placed the debt with the largest overall balance at the top of the list. Your total combined minimum payment on all four debts is $1000. If your budget allows for $1500 per month to pay down debt, the snowball method would prescribe making the minimum payments on the three debts with the largest balances, for a total of $740, and paying the remaining $760 toward the smallest loan balance, in this case Auto Loan 2. Why does this work? The idea behind the snowball method is that you'll pay off the smallest loans first and be able to cross them off of your list, thus motivating you to stick with the program. The psychological benefits of having only three monthly debt payments instead of four will help you to keep working to get out of debt. After Auto Loan 2 is paid off, your job is to continue paying $1500 a month, this time paying minimums on the first two debts, and putting all the excess toward the student loan, paying it off as quickly as possible and reinforcing the positive feelings of paying off another debt. Another variation of the debt snowball method is to rank debts not by the size of the payoff amount, but by the interest rate. Proponents of the Interest Rate Snowball method prefer to pay off the loan with the highest interest rate first, helping to make sure that the borrower ends up paying less overall and paying off debts in a shorter period of time. Both of the above snowball methods will work, but only when accompanied by discipline and a commitment to contribute monthly and stop accumulating new debt. The debt snowball method is a great first step to take before looking for more costly professional debt solutions. Article Source: http://keywordbeast.com Author Resource Box Are you thinking of trying to lower your payments by negotiating credit card debt? Make sure you visit the Debtopedia website to get some helpful tips first. Please Rate this Article 5 out of 54 out of 53 out of 52 out of 51 out of 5  Not yet Rated Click the XML Icon Above to Receive Debt Consolidator Articles Via RSS! Additional Articles From - Home | $10 To $20 | Debt Consolidator Want To Consolidate Your Debts? - By : Joseph Then Eliminating Debt in 5 Easy Steps - By : Jonathan Lemereaux Debt Free Consolidation - By : Cheryl Pierce Quickly Get Out Of Debt With a Consolidation Loan - By : Michael Benifez.. Danger Options in Consolidating Debt - By : Landon McGehee Using Equity Loans For Debt Consolidation - By : William Blake Tips To Getting Out Of Debt With Debt Consolidation - By : Chris Channing Using My Home To Clear My Debt - By : Mark Longman.. Basics Of Debt Consolidation Options - By : Landon McGehee Strategies For Coping With Your Debts - By : Martin Sumner

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