Snowball Debt Reduction
Since debt seems to snowball, using snowball debt reduction seems appropriate. The snowball method refers to applying payment toward revolving credit like credit cards. Experts differ on whether the snowball method is the best financial method for repaying debt or not. Experts also would disagree in whether debt management techniques would involve the snowball method. Before considering any form of debit management, a person should talk to their creditors to see if reduction in current balances is possible. Sometimes negotiating with creditors can lower debts, especially credit cards, around 50% or more. Most creditors would rather negotiate down than lose the entire payment if an individual should claim bankruptcy.
Talking ones way out of debt is impossible although some have been able to do so. An individual needs to figure out the best solution for his or her situation. To determine whether the snowball debt reduction is the best method for a household, a person must know how he or she handles issues that take time to complete. Most people need to see results and objectives met along the way. If measures of completion for a task are not necessary, this method of account reconciliation is possible.
Snowball debt reduction refers to a process of paying off balances and adding the previous payments to new figures. All balances should reflect, in order, the smallest at the top of the list with the largest at the bottom. The list works either on regular paper, in bookkeeping ledgers, or in a spreadsheet. For those technically challenged or can barely keep the checkbook balanced, simply writing the amounts on a sheet of paper is sufficient. For people who prefer systematic and electronically controlled information, a spreadsheet works perfectly. The spreadsheet will help a person track progress with minimal effort once the data enters the spreadsheet. The key to the snowball debt reduction is writing the accounts from the smallest amount at the top to the largest on the bottom.
Before snowball debt reduction can occur, a person should develop a budget. First, a log of expenses must occur. In a months time, all expenses from a candy bar to gasoline and a mortgage payment need to go on the expenses list. Second, a look at the list should help an individual know what is necessary what is excess so that more money is applied toward paying down the balances. Thirdly, once a plan formulates and a budget appears, an individual needs to stick to the proposed plan. If extra spending occurs, the revolving credit will never dwindle. He or she should seek extra money even if it means working a part-time job or selling some personal items.
Now, snowball debt reduction can begin. Each bills minimum amount is paid except for the smallest. The extra money found during the budgeting phase is applied to the smallest amount too. Once that statement reflects zero, the money used to pay that invoice is added to the next statement along with the minimum already paid. Once the second invoice is zero, the money applied to it from the first invoice and the minimum paid applies to the third statements minimum due. Thus, the snowball debt reduction begins. The following is an example. The bills total $150, $500, $1,000, $1,500, $1,750, and $2,000. The minimums for each in order are $20, $40, $50, $55, $70, $75. The person found 40 dollars extra to use toward paying down the bill. So, $60 can be applied toward the first amount of $150. In two and a half months, the first invoice is gone. So now $60 is applied to the $40 of the second invoice equaling $100. In 5 months, the second statement is also paid. The $100 can then be added to the $50.00 already being paid on the third bill, which brings the new payment to $150.00. In just over 6 months, the third bill is paid in full and now $205 can be applied to the fourth bill. Thus, the snowball affect occurs. Just as a snowball, rolling down a hill catches bits of snow creating a bigger ball at the bottom, so does this method of repayment. Beginning with the smallest amount and working ones way toward the larger allows a person to see light at the end of the financial debt tunnel. An individual choosing this method of repayment needs to call their creditor and ask them to apply the extra payment on the principal.
As shown, financial freedom can come by snowball debt reduction. As mentioned previously, experts would disagree with each other as to whether the snowball effect is the best way to reduce financial responsibilities. Financial advisors say that the best way to reduce balances is to pay the invoice with the highest interest rate because paying off the highest interest rate first is better economic judgment. However, a person may feel inundated and see no hope, especially if the card with the highest interest rate also has the highest balance. What is important for an individual to remember is that unforeseen circumstances arise and new cards and new accounts should not be opened. The only cards an individual should use on a regular basis would be food and gas cards. Otherwise, checks and cash are the payment of choice. Debt proofing life is hard because spending money is a necessity. Two of the most important lessons to learn are to pay more than the minimum and to rollover payment once one statement reflects zero. Another lesson to learn is to change spending habits. Then he that had received the five talents went and traded with the same, and made them other five talents. And so he that had received five talents came and brought other five talents, saying, Lord, thou deliveredst unto me five talents: behold, I have gained beside them five talents more (Matthew25:16&20).
Setting Budgets For Debt ReductionsSetting budgets for debt reduction is a very important step toward seeking financial freedom. Budgeting can help a consumer get out of debt, improve his or her personal monetary situation, and regain control over their finances. Using the steps and tools of money management can often save a person between five to twenty-five percent in the first year. This becomes available cash that can be used toward eliminating obligations and then having extra to save or put towards other expenses. That is how setting budgets for debt reductions help. Often advisors or counselors can be of great assistance to an individual with a desire to create a budget or plan. Some consumers may choose to do this on their own. For the individual wanting to attempt to create a plan for his or her money, the Internet can be of assistance. A search engine or website will be a great place to begin this process. Anyone interested in budgeting without professional assistance should ask God for guidance and wisdom. "My son, let not them depart from thine eyes: keep sound wisdom and discretion" (Proverbs 3:21).
For the consumer with the desire to work on budgeting without professional assistance, there are some important things to consider before even looking at the financial aspect of a budget. First it is important to determine what is important to the individual, or what they value. Also, the individual should consider personal goals as both an individual and a family unit. Thinking about the future, especially in the long term will be necessary. This information will help the consumer when actually setting budgets for debt reductions. After looking at what is important, the individual should consider that balance is an important aspect of life that can be impacted by finances as well. When setting budgets for debt reduction it is important to balance many aspects of life. Most importantly, it is vital to balance God with family, education, exercise, and work.
Budgeting will require a consumer to use introspection when it comes to financial matters. The actual process of setting budgets for debt reductions will mean looking at personal finances. This process will begin with a look at sources of income. Some of the major income sources would be employment, bonuses, social security, interest/dividends, and other taxable or non-taxable income. Adding all these up will give the individual his or her income. Then, when setting budgets for debt reduction, it is necessary to deduct expenses. It is vital to make sure to include everything; savings, taxes, housing, transportation, health/medical, donations/gifts, and other committed discretionary items. This process tells the consumer what kind of cash flow they should have each month to work towards a budget. Reducing or eliminating debt is an important step to becoming secure and independent while being able to live a life in a balanced way honoring the consumer's value system resulting in less stress and more peace.
Self-help debt reduction information is often sought by people with burdensome credit card, tax, or education expenses. Excellent books can be found that deal with budgeting and financial planning. Money management seminars on the topic of self-help debt reductions are available through local community colleges and through major financial lenders. And, of course, the topic can be handily researched through the Internet.
However, most of the online sites one reaches by searching for information on how to reduce loan balances actually include links to companies that offer services in the areas of consolidation, negotiation, or home equity loans. Many of these companies are non-profit, which is often preferred over for-profit companies. If a debtor is searching for self-help debt reductions, it is likely that he or she has not yet reached the point of having lawsuits threatened, but may be receiving harassing telephone calls. The sooner one can start the debt reductions, the better.
Credit card companies have made it a practice to send information through the mails frequently offering low-interest rates for debt consolidation as a self-help debt reduction method. Sometimes those offers are genuinely helpful, but it is important to read all the fine print very carefully. If, for example, a low-rate teaser ad is offered and the time period will not be long enough for the debtor to pay off the balance, then that offer is not a good fit for the current needs. If the low interest rate is guaranteed for the life of the note, then it is worth considering. The best defense against mounting card balances is education. Referring to such wisdom, Proverbs 3:15 says, "She [is] more precious than rubies: and all the things thou canst desire are not to be compared unto her." Once the outstanding balances have been reduced or, better yet, eliminated, then the counseling available in the books or seminars will help to avoid credit problems in the future. For many people the best self-help debt reductions include examining the cycle of spending and the reasons for climbing balances in the first place.
Credit counselors may be an excellent resource for money management solutions. These professionals can help with account consolidation and negotiation, and they can help with equity loans as well, but for a fee. Costs include a set-up fee, then a monthly fee after that until your the matters are settled. This could put yet another unwelcome extra financial burden on a debtor's shoulders. When considering help from anyone else in your attempt at self-help debt reduction, it's important to check into the history of the company through the Better Business Bureau. Americans are generally pretty independent, so self-help debt reductions are appealing as the means of getting ones self out of the debt quagmire.