Debt-snowball Method

                                                                                         

The debt-snowball method is a popular and highly successful method of debt management that has allowed many people to pay off all of their credit cards within a few years or less depending on how much they were in debt when they first began the program. The debt-snowball method has been preached by Dave Ramsy for some time and this is also a significant factor in its increased popularity.

The debt-snowball method is simple, but many people don’t think of it until they have someone explain it to them. The method contains only a few easy to follow steps. First, the person must list all his debts in order from smallest to largest. If two debts have a similar balance, then he should payoff the debt with the largest interest rate first. It may make more sense to pay off all the debt with the largest interest rates first, but an important factor of the debt-snowball method is the role that psychology plays. The borrower takes on a more positive attitude when he sees fewer bills every month. If the borrower has the willpower, it may be better to pay off the balances with the highest interest rates first, but this theory is not part of the debt-snowball method.

While still paying the minimum payments on all the other debts, the person then finds the maximum payment he can afford to pay on the smallest of the debts and then commits to paying it until that debt is paid off. When that particular debt is finally paid off the person then takes the debt with the smallest balance of those that remain and continues the process as before, except now he can afford a larger payment as he no longer needs to make a payment on the debt that has just been paid off.

The Debt-snowball method receives its name because in theory the amount he is able to make towards the current debt that he is acting towards paying off gradually gets larger and larger, like a snowball rolling down a hill, gathering more snow and becoming larger. It’s not certain where the name originally came from, although many believe it was penned by Dave Ramsy.

Any investment contributions or retirement funds are halted during the debt-snowball method as paying off Debt should take the highest priority. Many people disagree with this theory and Ramsy himself claims that investment spending should be halted for no more than 3 years. Some followers of the debt-snowball method compromise by continuing to make minimum payments to their retirement funds. It’s also important to note that mortgages and other large debts do not play a part in the debt-snowball method.

While there are a few people who disagree with it, the debt-snowball method has shown a lot of results and continues to grow in popularity. While it may not be perfect, it is a simple and time-tested approach for getting out of debt and can be a great substitute for credit-counseling, debt-settlement, and bankruptcy

About the author:
Usha pradhan has completed her MBA in finance sector and currently working as financial author for cash loan by phone. She is contributing her knowledge on loan, cash loan, Annual percentage rate, unsecured loan, Bankruptcy. To know more about her please visit our website www.cashloanbyphone.com




Article Source: http://www.Free-Articles-Zone.com