Post contributed by Maria Smith of http://www.debtconsolidationcare.com/.
If you’re drowning in an ocean of debt and you don’t know how to stay afloat, there’s hope for you. The debt snowball method can help you pull yourself out of the vicious cycle of credit card debt. The debt snowball method can be a life-saver at times when you have no other way of dealing with the multiple credit card debts that you’ve incurred due to your poor spending habits. Debt snowball can be an effective solution to your debt problems where you pay off debt starting off with the account that carries the smallest principal amount. You can add an extra amount of money to the smallest debt until it’s paid off and then take that amount and concentrate on clearing the next biggest amount. This way you can easily pay off all your debts within a short span of time. Here are the basic steps involved in the debt snowball method:
- Prioritize your debts: The first step is to organize all your credit card debt accounts and prioritize them from the smallest to the largest principal balance. As the debt snowball method involves starting with the lowest balance first, it is crucial for you to know the exact amount that you have to start with.
- Keep on making the other minimum payments: As you add all the extra payments towards the debt with the smallest balance, you must also make sure that you do not fall behind on the minimum monthly payments on the rest of your debts. This will unnecessarily increase the interest rates on the rest of your debts, making it tougher for you to get out of debt. Therefore, keep on making the minimum monthly payments on your debt accounts, leaving out the one with the smallest principal amount.
- Find an extra amount: You need to funnel all extra and available income to the loan on which you have incurred the lowest principal amount. The amount that you are able to apply towards the lowest balance account is commonly known as the snowball amount, and the faster you save money and pay off the entire amount on the smallest debt, the faster you can move on to the next biggest debt.
- Add the minimum amount to the extra amount: As you pay off the entire balance of the smallest debt account, you can then add the minimum monthly payment of the last account and add it to the extra payment to enhance your snowball. As you apply this bigger amount to the next big debt, you can start paying it off in the same way you paid off the last account.
- Repeat the process until you have paid off your entire debt: The above process needs to be repeated while addressing each of your debts so that you can repay all your debts and regain control of your personal finances.
Curtail your spending in other areas so that you can end up making the snowball larger and pay off debt easily. Try to find as much extra money as possible and resist the urge of spending the extra money until you’ve paid off your debts. Live below your means until you become debt free and relieve the financial stress from your lives.