Debt Reduction

Five Snowball Debt Reduction Methods

When you are in debt, one of the best ways to reduce that debt is to adopt one of the snowball debt reduction methods. All of them are pretty simple to understand and are a great way to tackle debt. While there are some small difference in the order of the debts to be tackled using different snowball debt reduction methods, these simply vary depending on how each person wants to tackle their debt.

The basics for all the different methods are the same. When people try to pay off debt on their own, they often try to pay down all the debt at the same time dividing the payments among all the debt equally. An example would be as follows if a person had $1200 to put toward the loans:

Payday loan: $4000 56% Pay $200
Credit card one: $2400 27% Pay $200
Credit card two: $3000 31% Pay $200
College loan: $17,000 10% Pay $200
Auto loan: $7000 12% Pay $200
Family member loan: $4000 6% Pay $200

With the snowball method, the person in debt focuses on a single debt and then pays the minimum amount on all the other debts. In the above case, it would look something like this:

Payday loan: $4000 56% Pay everything left over after paying minimums to other debts
Credit card one: $2400 27% Pay minimum
Credit card two: $3000 31% Pay minimum
College loan: $17,000 10% Pay minimum
Auto loan: $7000 12% Pay minimum
Family member loan: $4000 6% Pay minimum

Once a debt is paid off, one simply moves onto the second debt on the list and pays everything toward that debt:

Payday loan: $4000 56% Paid
Credit card one: $2400 27% Pay everything left over after paying minimums to other debts plus what had been being paid toward the debt already paid off
Credit card two: $3000 31% Pay minimum
College loan: $17,000 10% Pay minimum
Auto loan: $7000 12% Pay minimum
Family member loan: $4000 6% Pay minimum

The question then becomes what debt to pay off first and there are arguments for and against each of them. The important thing to remember is that you look at yourself and determine which method makes it most likely that you will continue to pay off the debt until it’s gone. The five snowball debt reduction methods are:

Highest Interest First
Lowest Balance First
Despised The Most First
Most Important First
Secured Debt First

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