Debt Information

The Debt Snowball Effect was ‘created’ by Dave Ramsey, the debt specialist. The normal logical step to take to pay of credit card debt is to do the follow:

1.    Order your debts from highest interest rate to lowest interest rate.
2.Allocate money to pay toward debts each month.
3.Pay the minimum payment on all your debt except the creditor with the highest interest rate.
4.    Throw every other penny you can find at the debt with the highest interest rate.
5.    When that debt is gone, do not alter the monthly amount used to pay debts, but throw all the money you can at the debt with the next-highest interest rate.

But then Dave Ramsey came up with the following:

1.    Order your debts from lowest balance to highest balance.
2.Allocate a certain amount of money to pay toward debts each month.
3.    Pay the minimum payment on all debts except the one with the lowest balance.
4.Throw every other penny you have at the debt with the lowest balance.
5.When that debt is repaid, do not change the monthly amount used to pay debts. Throw all the money you can at the debt with the next-lowest balance.

The reason why you should do it the Dave Ramsey way is that psychologically it will give you a massive boost to know you have paid of one of your creditors. You can then cut up that card and close the account and one of your debts are no more.

When a customer is in debt counseling, he pays all creditors evenly according to that the debt counsellors set out for him to pay. The customer may make additional payments to creditors directly. So instead of paying off the account with the highest interest, the customer will make payments to creditor with the smallest outstanding balance. This basic strategy will keep the over indebt customer motivated and focus to pay off his debt faster.

If you are over in debt and cannot pay your creditors each month, you should apply for debt counseling.

Tags: Debt Consolidation //