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Redirect That Cash When You Pay Off Bills: The Snowball Effect

When you finally reach the last payment on a loan, credit card, or other monthly financial obligation, cheers of joy will abound but what will you do with that extra cash? It may seem like a good idea to splurge a little since you have been so dedicated to closing out a debt but there is a better plan for that money. Redirecting the cash you save on a monthly payment is the best way to help get you out of debt faster than you originally planned.

What Does It Mean to Redirect?
When you pay off a debt, the money you were paying each month toward that debt should now go another debt expense. For instance, you pay off a loan note of $200 a month. Take that $200 and add it to the payment of your next highest debt – a credit card bill, student loan payment, etc.

Starting the Snowball
Gather your personal finances and do the math. Are there any debts you are close to paying off right now? For example, if you have a $400 balance on a credit card, tack that $200 payment on to your regularly monthly payment. In less than two months, you have tackled yet another debt.

Growing the Snowball
Now that you have paid off two debts, take the $200 and add to it the amount you paid on your recently paid off credit card (we’ll say $50). Tack the extra $250 on to your next debt until it is paid in full. Continue the process and you will keep eliminating debts in a much faster period of time as your debt decrease and your extra payments increase.

What To Pay First?
There is some debate about how individuals should manage their snowball payments. Some argue that you should pay down the largest balances first. Others argue that paying off the smallest balances first will result in faster elimination of debt payments which can then go toward higher debts. Still others argue that the highest interest debts should be addressed first. Since the experts don’t agree, the best plan of action is the one that makes the most sense to you and your personal financial situation.

What Next?
After you have reduced your monthly bills down to basic living essentials, you should work on saving everything that is left over. Earmark some of the money for fun like family vacations you never got to take during the tighter budget days but invest a good majority away in retirement accounts, college savings, or an emergency fund. This will give you a good balance between being financially savvy and able to enjoy the fruits of your labor.

How to Pay Down Your Debts Quickly Using the Debt Snowball

With debt concerns more prominent than ever in society, many people are finding themselves faced with having to deal with more debt then they may have thought possible. When debts are mounting, the absolute worse thing you can do is ignore the situation. By avoiding your financial responsibilities, you are only adding to your own problems. The only solution to your debt problems is to tackle them full on and start paying them down (and off!) as soon as possible. Paying off debt for good takes a serious commitment to allocating your monies towards debts. It will not always be an easy road but it will certainly be one worth traveling, as the end result is financial freedom.

So, how can you pay off those debts? Here is a list of ways to start paying down your debts fast:

Stop Spending!
Once you have made a commitment to paying down your debts, you will have to stop spending. Do not continue to buy anything you can not pay cash to get. Adding additional charges to an already high credit card balance will not help you pay off your debts. Create a reasonable budget that incorporates the funds you need to put as much money as possible towards debts and then stick to that budget at all times. Savings may even have to be put on hold while you work towards paying down your debts.

The Snowball Method
Creating the perfect snowball takes time. Starting with a little chunk of snow, you must patiently roll it into a larger and more formidable snowball. The same theory works with debts too. You must first gather all of your debt balances and make a list of what you owe. Next, prioritize your debts. For instance, you have a credit card with a maxed out balance and a high interest rate. The idea behind snowballing your debts is you begin focusing your money towards paying off that one single debt. You should still pay your mortgage, utilities, and continue making at least the minimum payments on other credit cards, but the majority of your money should go towards paying off that one debt. Once payoff has been achieved, you take the money you have been paying on the now-paid off account and put it towards your next debt. You continue this snowballing cycle with all of your debts until everything is paid in full. As you get down to your last remaining debts, you likely will be debt free faster because the available payment money will be much greater.

Make More than the Minimum with Payments
If snowballing your payments isn’t possible, you should at least attempt to be paying an additional percentage of money towards the outstanding balance each month. If you can even double the minimum payment, you can get out of debt much faster. Making only the minimum payments on your credit card bills each month will only drag out the time line for payments. With added fees and interest, it can take up to 30 years to pay off a few grand on a credit card.

Find More Income
If making more than the minimum payments towards your debt each month is not always possible due to financial constraints, consider getting a part time job and commit to using all of the money you earn strictly towards the repayment of debts. It may take some time and schedule adjustments but once you have found financial freedom, you can leave the second job behind and focus on staying out of debt.

Seek Professional Help
If you find that you are not able to work your debts out on your own, it may be time for some professional assistance. There are plenty of non-profit agencies and debt consolidation services that have just the right formula for reducing your debts. Because there are also a lot of less-than-reputable places on the market as well, you need to do your research and find a company that is right for you. Not every place will have the same terms and conditions. Contact places of interest and interview them to find out if their counseling or consolidation practices will work for your budget. Seeking the advice of professionals and then committing to their recommendations for debt reduction may be a great resource for those who can’t seem to get out from under debt but do not wish to file for bankruptcy.