Reduce Debt Quickly and Easily: The Snowball-Debt Reduction Method Works!

Credit card debt can often feel like a never-ending cycle of minimum payments and interest accrual which may affect the debtor not only financially, but emotionally. The average American family owes upwards of $5,000.00 in credit card debt alone. This amount of debt will generate at least $75.00 per month in additional interest due, provided that each card charges an average APR of 18%. The snowball debt-reduction strategy is an easy-to-implement method of tackling existing debt which provides tangible results in a relatively short time frame. The strategy requires the debtor to pay off all accounts starting with the smallest balance owed. Available cash is applied to the debt with the smallest balance owed, while minimum payments are made on larger accounts. Once the smallest debt is satisfied in full, its earmarked payment is then applied to the next largest debt, and so on. In theory, when the final debts are reached, the available amount of payment for the larger debts will grow quickly, as does a snowball rolling down a hill.

There are many recognized debt-reduction strategies; however the debt-snowball method is the primary method taught by financial experts because of both its effectiveness and its correlating psychological benefits that result from its quick, tangible results. Debtors remain motivated to achieve debt reduction as they see fewer bills and their smaller debts being satisfied in a relatively short time frame.

In order to qualify for the debt-snowball method you must have enough available income to be able to meet all minimum repayment requirements on open debts. You must also refrain from utilizing additional credit in order to properly implement an effective debt reduction plan. The debt snowball method requires you to first list all of your debts in order from the smallest balance to the largest. In the event that two debts have very similar amounts owed, give the debt with the higher interest rate priority. Next, you must make a commitment to pay the minimum payment due on each account, as well as determining the amount of additional money that you are able to apply to the smallest debt each month. Begin paying the determined amounts, and ensure that the lender is aware that extra payments are to be applied directly to the principal amount, and not to next month’s payment. When the smallest debt is satisfied in full, add its total payment (minimum plus extra amount) to the minimum payment of the next-largest debt and continue to pay this amount monthly until the account satisfied in full. Always continue to remit timely, minimum, required payments on all other debts. When the second debt is satisfied, apply its entire total payment to the third, and so on. Repeat the process until all debts are satisfied in full.

For example, you have three credit cards (A, B, and C) with debts of $1000, $2000, and $3000, respectively, and you are required to pay a minimum of $100, $200, and $300 on these cards each month. You have determined that above the minimum required payments you will be able to apply an extra $100 toward debt-repayment each month, which should first be applied to Card A. By paying $200 on Card A, $200 on Card B, and $300 on Card C per month, the smallest debt, Card A, will be satisfied in full on month number five. Once Card A is paid in full, you have an extra $200 per month to apply to Card B which will be paid off on month eight, and subsequently the extra monies available to apply to Card C will result in its payoff on month nine. Once all three credit cards are satisfied, you will have an additional $700 per month to save or invest! In this example, the snowball debt reduction method effectively satisfied a $6,000 debt in nine months. However, please note that interest accrual was removed for the purposes of the example. When interest is calculated, the monthly interest accrual increases the loan balance amounts and lengthens the payoff time.

The snowball debt-reduction method is simple to implement and can put you on the right path to reaching your goal of a debt-free life. Don’t let yourself be overwhelmed by credit card debt. Calculate and implement your snowball plan today.


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