How to Use a Debt Snowball

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By MrsStaceyB
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Debt Snowball

If you are like most Americans you have debt. The average American household has $8,000 dollars in credit card debt. With the state of the economy and the current credit crunch it is more important than ever to take control of your financial situation and get yourself out of debt. A debt snowball is a proven way to do just that. Some may wish to simply pay off their debt as quickly as possible but for those who are on a tight budget a debt snowball is an effective way to chip away at your debt and see results.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

Know-how
Persistance
Patience

Step 1

Collect the statements from your credit cards and loans and write down the balance, Annual Percentage Rate (APR), and minimum payment on a sheet of paper.
Step 2

Add your minimum payments together to figure out how much you need to pay each month just to get by. Next, look at your budget and calculate how much extra money you will be able to apply toward your debt payments each month.
Step 3

You can choose to pay your debt off in order of a)The smallest balance or b)The largest interest. Here are some benefits of both:

* If you choose to pay off the highest interest rate first you may save money in the long run. If you have one card that's interest rate is drastically higher than the others then paying that card off first may be a good idea. It is likely to have a larger minimum payment and once that card is paid the pace of your debt payoff will quicken.

*By choosing to pay the smallest balance first you will see results
quickly. This may motivate you to continue to pay off your debt and will give a big "morale boost". Since you will be making certain financial sacrifices to get out of debt these quick results may be what you need to continue your good habits.
Step 4

Once you have decided which methods to use write down your debt in that order. You will pay the minimum payment on each credit card other than the one with a)the smallest balance or b)the largest interest. You will put all the additional money into the payment of that card.
Step 5

Once that card is paid off you will "snowball" the money you were paying on that card and apply it to the card with a)the next smallest balance of b)the next highest interest rate. You will repeat the debt snowball until all your credit cards and loans are paid.

Comments

bookluvver2003 said

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on 3/9/2009 Great tips! Thanks.

honeyd81 said

on 2/22/2009 Great Article!

Scarlett9284 said

on 2/19/2009 It is so important to only use credit cards in emergency, especially once you've paid them all off using your great tips. No reason to go back into debt when it's unnecessary! Great article! 5*