Help Me Pay Off My Debt-Debt Snowball Strategy

Finance Articles | November 12, 2010

"Help me pay off my debt" you say? No problem, an increasingly popular debt elimination method is called "Debt Snowball Strategy" which pays off your debts one at a time.

How to Eliminate your Debts Easily

“Help me pay off my debt” you say? OK. Here’s an idea for debt control called the 'debt snowball'. It is starting to be famous. This is where the smaller sized debts are eliminated first followed by the higher credit card debts.

When you use a debt snowball to get rid of your debt, it eliminates debt systematically. The moment you pay smaller credit card debt, you’ll see successful results and it will make you hold on to the plan.

How the Debt Snowball Gets Results

Here is how the snowball succeeds: example, you have five existing credit card debt charges which are $100, $500, $800, $800 and $4,000. Before getting started on this method, it is better to be caught up with all of your monthly debts.

This procedure of arranging your charges in ascending sequence is needed. It's also important not to include any new credit card debt while you execute this method.

The detailed process to eliminate your credit card debt is to shell out only the minimums on every debt except the smallest one.

In the given example, the lesser credit card debt which has a $100 balance has a monthly charge of $10. Here now is the tough part- figuring out how much more money you can afford to apply to increase the monthly payment for the smallest debt.

The best decision is to double it to $20 or more if you can. Nevertheless, almost any amount of money certainly will help. Paying back even more than the minimum amount will certainly decrease the debt faster. Let’s say you are paying 2x of it, so there is an extra $10 applied to the balance each month.

This shows that the charges will be paid a lot faster, most likely in six months or less. The payment fee, in this case, $20 went to the smallest credit card debt. Then, applying it using the second fee with a balance of $500 shells out an extra $20 per month. Let’s say $10 of the payment went to the finance charges, this implies that $60 a month was immediately applied to the debt.

That means even a $500 balance will be entirely eliminated in around 8 months. So now, you’ve eliminated two of your credit card debts in just 14 months.

This is where the snowball works faster. You can do the method again on the two $800 debts. Doing the same calculations, you can use the extra $70 to one of the charges, then to the other one. The first credit card debt is eliminated in six months and then the next one is paid off in less than four months. Now you have a total amount of $205 every month that can be used for the large $4,000 debt.

To make this easier to understand, the payment on the $4,000 is $200 a month already with $100 totally vanishing into your financing fees. Then you put $205 to the minimum payment that is given to the principal and the whole balance of $4,000 can still be eliminated in just over a year!

If you follow the above plan, there will be no need to say “help me pay off my debt!”

Article Tags: Credit Card Debt, Credit Card, Card Debt

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ABOUT THE AUTHOR

Debt Free Solutions is a financial consulting company that assists Americans across the U.S. to eliminate their credit card and other unsecured debt (e.g. medical bills, collection accounts).

We utilize various programs and strategies to assist them to get rid of their debt in the quickest, most efficient method possible. We also analyze the risk factor. We structure our programs to drastically minimize the risk that is inevitable with all debt elimination programs.

We offer our clients much more than a debt settlement company does. The vast majority of debt negotiation companies simply help you settle your debts with your creditors- nothing more.