Debt Problems: What is a Debt Snowball?

On October 12, 2010, In debt management

Have you heard of a debt snowball?  It can be one of the best ways to mentally prepare yourself to pay off your debt.  This debt solution works very different than other methods because you pay the lowest balances off first and then move onto the larger balances.  This method has been debated by many because mathematically there are better ways to get rid of your debt, but psychologically it is the best method there is.

When you begin to eliminate some of your total debt not only are there less bills to pay but you achieve a feeling of well-being by knowing you have gotten rid of some of your debt.  These little victories do not happen as often when you stick to strictly interest rates.  It can be forever before you feel like you have accomplished anything.  This can be mentally draining and discourage you from getting out from under debt.

Here are some simple instructions to use to set up a debt snowball:

First, list your debt from the highest balance to the lowest balance.  Do not worry about interest rate levels.

Second, pay the minimum balance on all of the bills on the very top of the list until the last one you have written down.  Pay as much as you can towards eliminating that balance.

Last, once you have paid off the bottom debt on the list move to the next from the bottom and pay what you paid on the bottom amount plus as much additional money as you can to get rid of its balance.

Here is an example of how you would set up your debt snowball list:

Debt 1 = $2000
Debt 2 = $1500
Debt 3 = $700

You would pay the minimum monthly balance on Debts 1 and 2 and pay as much as possible on Debt 3 until it is eliminated.

By using this method you will have a sense of accomplishment.  It will be easier to identify what you have accomplished and will motivate you to continue to pay off your debt problems for good.

Tagged with: • • •
 
0 Comments
Leave A Response

What to do about Debt Problems

On July 1, 2010, In debt management

If you have acquired a substantial amount of debt in the past few years, you are certainly not alone. It has become increasingly harder to make ends meet these days, and people and families have felt the sting in their bank accounts. Sometimes it’s not just about having enough money to buy things, it can also be about owing so much that collectors have come calling. Being in debt is a horrible thing where a person can feel like they are on the run even in their own home.

If you have debt problems, it’s important to get a handle on the situation immediately. To make a medical analogy, debt is like a bleeding wound that you want to cauterize right away with as little damage as possible. So that means stopping excessive spending in all areas that you can afford. You want to concentrate on your biggest credit card debt with the highest interest rate first, and throw everything you have at eliminating that problem. It’s not enough to make minimum payments on your credit card bills because you may be paying off that sum for years. If it becomes too large a problem, debt consolidation might be an alternative that will allow you to focus on one debt alone.

There are many ways to cut down on spending that will involve a bit of sacrifice in daily life. But when you think about it, a much bigger sacrifice would be to lose your home or car to creditors, so making these little changes is relatively easier. That means spending less on eating out and cooking your own meals at home. It can also entail buying less new clothing or using your money for entertainment. Whatever it takes, you have to work on stopping that bleeding as fast as you can. And while it might be tempting, don’t try to solve the problem by using other credit cards or getting instant loans because you’ll just end up in the same place a few months down the line. Debt is never fun to deal with, but the sooner you take action, the sooner you can get back to a normal life.

Tagged with: • • • • •
 
0 Comments
Leave A Response

Dealing With Debt

On October 4, 2009, In budgeting

The first step to overcoming a debt problem is to realise that the problem exists. Understand that the longer you have debt hanging over your head the more money you will waste on interest charges.

Next, you must get serious about clearing the debts if you are to make any headway, no more putting your problems to the back of your mind hoping they will disappear. The reality is that dealing with your problems and finding debt relief means living within your means and is a simple task, all it takes is a little reprogramming of the way we treat money.

Take half an hour to sit down and consider how you came to be in debt in the first place. For most people the problem lies in living beyond your means, spending more money in a year than you earn. For others, the problem has arisen because of unforeseen circumstances, perhaps you’ve lost your job or had unexpected medical bills.
Regardless of the cause, similar techniques are needed to remedy the problem.

Having a plan of action always focuses the mind on the task in hand. With that said you’ll find the following steps will help to get your debt problems straight in your head, allowing you to take more constructive action in clearing your debts.

1.Make a list of all your outstanding bills and debts, then a list of your monthly incomes.

2.Prepare a budget.

3.Start keeping track of all the money you spend each month. This may not seem like much fun but getting out of debt can be hard work, and this will pay dividends very quickly.

4.Start to search for areas in your life where you can save money. There are a multitude of websites available that will guide you with this. Get Rich Slowly is an excellent resource in this regard with many money saving tips to help you take control of your finances.

5.Get to the stage where you are spending less than you earn each month, using the extra cash to pay off your debts. Start by paying off the highest interest debts such as credit cards first.

6.If your can’t fix your debt problem with these steps try getting professional help from one of the financial charity organisations in the UK. Whatever you do, don’t make you first port of call the Debt Consolidation Companies which advertise on day-time television. Try the Citizins Advice Bureau or National Debtline for helpful unbiased advice.

Tagged with: • •
 
0 Comments
Leave A Response

Getting To Grips With The Debt Management Plan

On April 17, 2009, In debt management

For individuals who find themselves with an unmanageable debt problems a debt management plan may be a possible solution.

The debt management plan is an arrangement between you and your creditors, but managed by a third party, in which you agree to repay your debts at a rate you can afford. Debt management plans can be an effective way of relieving pressure on your financial situation allowing you to repay debts as quickly as possible without requiring the borrowing of more money.

With the debt management plan there is only one payment to make each month to the debt management organisation who then distribute the money between the creditors. Interest and additional charges are often stopped when a debt management plan is conducted taking even more pressure off the situation.

The disadvantages of the this type of consolidation loan are that although you’ll find your payments more manageable, you may end up paying more in the long run as your debts will invariably take longer to pay off. Before agreeing to such a plan make sure you work out the total cost of repayments instead of merely looking at the attractive new monthly payment.

Be extremely careful that you set up a debt management program with a reputable company, and don’t let anyone talk you into borrowing even more money on top of your current debts. This will obviously only make matters worse.

For free, independent and impartial debt management advice in the UK contact The Citizens Advice Bureau.

Tagged with: •
 
0 Comments
Leave A Response

Getting To Grips With The Debt Management Plan

On April 17, 2009, In debt management

For individuals who find themselves with an unmanageable debt problems a debt management plan may be a possible solution.

The debt management plan is an arrangement between you and your creditors, but managed by a third party, in which you agree to repay your debts at a rate you can afford. Debt management plans can be an effective way of relieving pressure on your financial situation allowing you to repay debts as quickly as possible without requiring the borrowing of more money.

With the debt management plan there is only one payment to make each month to the debt management organisation who then distribute the money between the creditors. Interest and additional charges are often stopped when a debt management plan is conducted taking even more pressure off the situation.

The disadvantages of the this type of consolidation loan are that although you’ll find your payments more manageable, you may end up paying more in the long run as your debts will invariably take longer to pay off. Before agreeing to such a plan make sure you work out the total cost of repayments instead of merely looking at the attractive new monthly payment.

Be extremely careful that you set up a debt management program with a reputable company, and don’t let anyone talk you into borrowing even more money on top of your current debts. This will obviously only make matters worse.

For free, independent and impartial debt management advice in the UK contact The Citizens Advice Bureau.

Tagged with: • •
 
0 Comments
Leave A Response
Go To Top »