When it comes to paying off Debt there are two notable methods, the snowball method and the avalanche method. The Snowball method focuses on paying off the smallest loan first before moving on to the next smallest and then the next. You take the win from paying off the first loan and use that momentum to propel you into paying off each loan afterwards. It is a very rewarding method that can really help to keep you motivated while paying off debt.
Step 1: Make sure your budget is up to date. If you don’t have one, now would be a great time to create your monthly budget!
Step 2: List all your outstanding debts, loans, and outstanding bills with payment plans. (This would not include your Mortgage) You need to be honest about your debt and your situation, don’t hide any debts under the table.
Step 3: Sort those debts by the lowest monthly payment at the top and the highest monthly payment at the bottom.
Step 4: Continue to pay the minimum payments on all loans. Use extra money found in your budget and put it towards the 1st loan (lowest payment) until that loan in completely paid off.
Step 5: While continuing to pay the minimum payments of the remaining loans, take the money you were putting towards the first loan and add that to the payment of the 2nd loan until that loan is also paid off.
Step 6: Repeat step 5 as many times and necessary until all outstanding debts are paid off.
In this example, you would put any extra money towards the credit card. Then the car loan. Then the medical Bill and finally, all you would have left is the student loan.
Think about trying to build a large snowman, it can be hard to get a small ball of snow to initially form. Looking at the snow in the powder format you may think it would never become strong enough to support an entire snowman. But you start small. Packing the snow tight and then rolling it, collecting more and more snow until finally you have the base of your snowman. That is how the snowball method works, you start small and keep adding little by little until you have large enough snowball to take down your biggest debts.
No matter how you tackle your debt, you have to keep working towards it!
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