A debt relief calculator is a very useful tool in your attempt of debt snowballing. Debt snowballing is probably the most popular method of getting out of debt fast. The term is derived from snowballing – the ability of a snowball to grow in size at a rapid rate while it is tumbling down a hill or mountain. So the purpose of debt snowballing is to get rid of debt in “fast”.

So how exactly does debt snowballing work?

The theory behind it is not that difficult to understand. Your goal in this process is to pay off all of your outstanding debt giving priority to paying off certain debts first. First, you will need to list down all your existing debts, its interest rates, and the balances left in each account. Most importantly, each debt should be arranged in a particular order.

There are two ways to go about listing your debts in the snowballing method.

1.  The first method requires that you arrange the list of your debts according to their interest rates sorted from highest to lowest.

You do this because you would want to pay off your debts with the highest interest rates first. These debts tend to increase at a higher rate, so the faster you pay them off, the faster you get to your quest of being debt free. Besides, paying for interest rate charges for a lengthy period would make the price of what you have purchased doubled or even tripled.

This method will prove advantageous to consumers who are dealing with a great difference in the interest rates of their debts. For instance clients who have multiple credit cards and whose interest rates differ from 5-15%. Getting rid of loans with higher interest rates will make overall debt more manageable.

2.  The second method requires that you sort your loans according to their outstanding balances. List those with smaller balances first.

Here, you would like to concentrate on eliminating debts that have the smallest outstanding balances. This is a method that should be applied by borrowers whose loans have negligible differences in interest rates. By eliminating the small debts first, you reduce the amount of creditors you have to deal with faster, making it easier and more convenient to manage monthly debt payments. The fact is, borrowers frequently forget to pay debts with smaller amounts. They either forget to pay these debts unintentionally due to the bigger stress they are facing with larger debt amounts. After all these seemingly insignificant debt amounts have been eliminated, you can then give more priority in paying off larger debts.

Whichever method you choose, you still have to continue paying all your other debts. Pay more than double of the minimum requirement on the debts you are prioritizing. And for the other loans, keep on paying the minimum each month.

The debt snowball has proven to work for thousands of Americans in the past. Of course, to succeed you would have to commit and follow through with the plan. With this process, whether you choose the 1st or 2nd method, you would be forced to focus on your credit situation. More importantly, it provides you with a doable and systematic goal that will guide you in reducing and ultimately eliminating debt for good.

It is easy to search for a free debt relief calculator online. This tool can help you decided which of the 2 methods is more applicable to your situation.

Tagged with: •

Filed under: Personal Finance

Like this post? Subscribe to my RSS feed and get loads more!