A debt snowball is the quickest and most cost effective method for reducing multiple debts.
It is achieved by targeting one debt at a time, while maintaining payments on other debts. As a debt is paid off, that payment is then added to the next debt - snowballing the payment into a larger amount.
An example would be, we have 3 debts.
So, our minimum monthly payments is $215. If we continued to pay that, we may be paying off debt for a very long time. So, we need to commit to a greater value to try and burn that debt down.
Minimum payments takes 11 months to pay off, costing us $168.77 in interest payments.
We decide that we can afford $400 per month to pay off debts. The more we can commit to, the quciker the debt will be reduced.
We decide to target the highest interest rate, as that's costing us more to carry. So what we do is we say, "Even though the minimum payment is $60, we're going to pay our commited value of $400, less the other payments.". So, $400 - $75 - $80 = $245
By doing that, debt 1 will be paid of in just over 2 months! Fantastic! One less worry. We still maintain the minimum payments on the other two dets. That's important.
Once Debt 1 is paid off - We snowball the monthly payment to the next debt. We select the next highest interest, which in this case, is debt 2.
How much should we pay? Well, we no longer need to pay the $245 to debt one, as it's closed. So we add that $245 that we were paying, to the minumum payment of debt 2, which is $75.
So now, the monthly payments to Debt 2 is $245 + $75 = $320!
By now, that debt would have reduced to $600 (As you were maintaining you minimum payments for the past few months). That means in less than 2 months - Debt two is GONE!
In 4 months, we have a single debt left!
Now what? Snowball time!. Like before, we carry the monthly payments to Debt 3. We're not paying the $320 to debt 2 any more, so we add that to the minimum payment of Debt 3. So, $320, plus the minumum payment of $80 =$400!
And with that, we'd have the final debt paid off in less than 2 months!
Snowballing took 7 months! And it cost us only $89.79, saving us around $78 in interest! Half price debt!
Now that's a very small basic example. We have cases where people have over 15 separate debts, all with varying interest rates, different minimum payments and large balances. Snowdebts.Com will manage that for you, showing you a projection of all your future payments and showing you exactly when you'll be debt free.
If you have multiple credit cards, store cards, loans or other debts where you have minimum payments due, snowballing will most certainly be your best bet for becoming debt free.
SnowDebts.Com, which simply helps you manage your snowball, costs you nothing. We provide a simple method for reducing debt as quickly as possible, allowing you to visualise your projected progress and plan your snowball.
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