Debt is a severe burden that most people suffer. It is more widespread than many people realize. According to a recent Gallup poll, the average American has 3.7 credit cards with 71% having at least one card. So if you have debt, you are not alone. In fact, you are in the majority. But would you like to leave this very non-exclusive club? Here are some tips to eliminate debt using the debt-snowball method…
Eliminate Debt: The Snowball Method
Review Your Budget
Take a long look at your household budget (you do have one, I hope) and see if there is ANYPLACE that you can cut back. How far should be looking to cut things back? Well, financial guru, Dave Ramsey has a quote that applies here – “Beans and Rice.” You want to cut expenses way back so that you can kill off your membership to debtors anonymous.
Here’s a rule of thumb to use when examing your budget for something to cut back on: if you don’t need it to survive right now, it goes. That vacation? It’s debt fodder.
Don’t worry, though – after you eliminate debt; you can save up faster than ever, and truly enjoy that vacation without worrying about who you owe.
Did I mention rice and beans earlier? Well, I wasn’t far off from the truth here. If you have money allocated to dining out, take that money and apply it to your debts. And that entertainment or movies column, no need for that when the debts are hanging over you.
You are going to be looking forward to going to the grocery store – it will be both an entertaining and dining experience. But it will be worth in the end, trust me.
Make a List of Your Debts
Make a list of all your debts. ALL of them, including that $20 you owe your cousin from high school. The only thing you don’t want to include here is your mortgage – you can tackle that later. The goal is to eliminate debt, but we have to start somewhere.
Build Your Snowball
Now that you have made a list, arrange them from the smallest to the largest. Take the smallest one, and change the payment in your budget to a new number.
What it the value you want to use? Simple, you want every dime that you could squeeze out when you reviewed your budget earlier. When you pay it off, take it off your budget (it’s gone) and add those funds to your next smallest debt on your budget.
Keep this going, and the payments will grow as you add the money from your previous smallest debt. This action creates a snowballing effect as you eliminate your debts. In fact, many financial experts call it exactly that, a debt snowball. It works.
If your smallest debt isn’t already on your budget, add it in to start if you can’t go ahead and knock it out. You want to be COMPLETELY debt free.
As you pay off your debts, make it a reason to celebrate. Now, I’m not advocating splurging with your snowball money, but make taking the payment off the budget into an event.
You can print out your old budget and burn it (in a safe place), throw darts at it, or ceremoniously shred it. But doesn’t it feel good to remove one and change the payment value on the next one? Now you are going places on the debt-free train.
Look for Snowball Boosters
If at all possible, look for ways to pay some money directly on your current target debt. Doing this will serve to “boost” the snowball, and it can get things rolling faster.
You can take on another project, deliver food, have a yard sale, or even sell a hobby. It doesn’t matter how you come up with it (as long as it was legal and nobody was hurt) as long as you can put the money towards your debt.
With a little effort, you can create a debt snowball that will work for you to eliminate debt. What happens to that snowball after that? Well, then that snowball rolls into the plus side every month, building up real wealth for you. Now that sounds like a snowball you want to land in your accounts for a change.