by Bo, April 05, 2012
More and more Americans are becoming much more aware of the amount of debt they are carrying, especially as fears of job layoffs and housing issues continue to be in the news. So many people are fearful of losing what they have worked so hard to achieve. They are now working hard at becoming debt free and being in control of their finances.
One of the proven ways that has been known to work the easiest is called the Debt Snowball. Popularized by finance expert and debt reduction guru, Dave Ramsey, it has become a popular method of reducing debt embraced by many. While this is not the only method that works, it is one that is easiest for a novice to finances to understand.
The Debt Snowball is in theory pretty simple. You first want to have your emergency fund set up before you start tackling your bills. This is something that you should have at all times and many people recommend at least $1000.
Once your fund is ready, start getting your debts lined up. The Debt Snowball uses the bill with the smallest balance first as the one to start paying off. What you do is pay the minimum amount due on all of your other debt and any excess money from the other bills will be added to the minimum amount due of the smallest bill to get that paid off quickly. Continue to do this each month until that first bill is paid off. Now you will see a winning situation very quickly! You will feel less stressed when you see results. It is the carrot for your situation.
Now that you have one paid off, take that same amount you were paying towards that debt plus any other amount you can afford, and apply it to the next lowest balance bill. This is in effect snowballing your payments. Gradually you will be increasing your payments to your debts as each one is being paid off and soon they will be completed. You can then move on to increasing the rest of your savings and into a more secure financial health situation.
Have you used this method? What are your thoughts on becoming debt free?