A lot of people don’t understand the methods on how to pay off their debt fully, or they think that it’s really hard to pay off debts. Having debts can be frustrating. There are consequences that people with debts suffer, like losing properties or any valuable possessions.
Interestingly, paying debt can be done without the help of a professional. You can have the choice between snowball and debt ladder. For sure, either of the two choices will work for you. Be reminded that the tips on the snowball process are focused for those people with low debt-to-income ratios. We recommend that you contact us for a free budget and credit review if your debt-to-income ratio is about 20 percent.
Why You Should Use the Debt Snowball Method?
- Do you have credits with outstanding balances?
- Are the small accounts irritating to pay every month?
- Are you most of the time discouraged by the impacts of your debt accounts with high maintenance rates or payments?
- Do you need a psychological enhancement?
If the answer to all these questions is yes, then you’re fit to use the Snowball Method. This is clearly designed to have speedy results.
Using the Debt Snowball Method
This particular method is actually not about paying off your accounts in a more efficient manner. It’s about paying your accounts as fast as possible. You can pay your accounts fully in no time at all with this method. Particularly, if you truly abhor having debts, this method is good for you. With this, you’ll be armed. Do you understand the point here?
Step 1: List down all your existing accounts. The suggestion here is that you have to list in order, from smallest to largest. Don’t include the interest rates as of the moment but make sure that you include your minimum monthly payment.
|Account Name||Total Amount||Minimum Monthly Payment|
|Retail Credit Card 1||$75||$10|
|Retail Credit Card 2||$250||$22|
|Retail Credit Card 3||$350||$41|
Step 2: You have to determine the amount of money you can set aside for your monthly debt payment. In particular, you need to have a fund that is for minimum monthly payment. Take this as an example: you have $600 as your total budget to pay off your accounts. The minimum payments will be totaled $493. Thus, you can have $107 as an extra fund. This surplus should be set to paying the smallest debts. Then, if you still have an extra fund after paying the preceding accounts, you can have it spent for your succeeding smallest account. By doing so, you’d be able to pay off your first Credit Card Account. The buffer amount would be used for the succeeding credit card accounts. Simple, right?
Warning: The examples given above were only simplified. They don’t include the interest rates to be incurred. Take note that interest rate growth will also cause debt repayment and it will take longer to pay.
Once you get the entire details of this snowball method and you apply them, you will surely enjoy the fast results. You will then notice that your buffer fund will grow. After one month of repayment, the minimum payment per month will decrease to $483. Further, the surplus amount will increase to $117. Why? This would eventually happen because you’d be able to close an account. Then, on the second month thereafter, your succeeding Credit Card Account will most probably be closed as well.
Now that you have the basic knowledge of the Debt Snowball Method, you might have been enlightened that there’s still a chance to enjoy prompt results. To avoid suffering from your debts, you can use this method to fully close credit cards and medical bills. However, it’s important to understand that paying student loans will not happen in a short period of time. It’s time-consuming. But this kind of debt is also manageable once you perfectly apply those approaches.
You can now imagine having a comfortable and convenient life because you’re capable of paying your debts month after month. Then, you can save money in your pocket for other purposes.