Want To Reduce Your Debt? Build A Snowball!
Debt has become commonplace in our society and for many a huge problem. We go deeper into debt without always understanding why. A reason for this is the selling of credit. Today’s retailers make as much if not more money selling credit as they do from selling their products.
Let’s take car dealerships as an example. Go to a used car dealership and see if they would like to talk bottom line price with you. I can ensure you that they will be much more interested in talking about payments than price free in five. The reason for this is they are selling credit.
Getting in to debt is so easy and really so convenient. The hard part, and it can be very hard indeed, is climbing back out. If getting out of debt is one of your goals, and it should be, you may be wondering how to do it and where to start. An effective method of debt reduction and eventual elimination is called the snowball effect and here’s how it can work for you.
The first thing that must happen is that you must make a commitment to not incur any further debt. If you continue to pile debt on top of the debt you already have you are going to always find it hard to get ahead of the debt curve
Once you’ve made the commitment you want to start putting some money aside as the second step. This is for an emergency fund. Three months income in a savings account is a worthwhile goal but if you can’t afford that go a little lower. The purpose of this account is to give you a kind of insurance so that if an emergency arises you don’t have to borrow to pay for it, the money is available and it’s your money.
With the commitment made and an emergency fund in place you can now begin the third step, debt reduction, and get your snowball started. A good strategy is to take all of your debt balances and attack the lowest balance first. This may be a retailer’s card or a credit card with a low balance. Pay these off while paying monthly minimums on the remaining debts, other credit cards, car payments and mortgage.
As you pay off the smaller debts you take what you’ve been paying on those debts and apply that money to the payments on the next larger debt. This is the snowball effect. By the time you get to your larger debts you are paying at the very least the minimum monthly payment plus an amount equal to your payments on all previous debts.
Once you get this process going you’ll indeed find out how powerful it is. In addition, one reason for starting with the smallest debt first is that a small victory can give you the incentive to keep at it. You’ll get some momentum started and find yourself with some new, improved behavioral habits. Of course as you proceed with your own personal snowball building process you want to keep your spending habits under control at the same time. It works!
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