Debt Snowball Elimination Method and Other Common Ways to Eliminate Debt

You can eliminate debt, but first you need to have a plan to do it. There are a few common methods that are used to successfully get rid of debt.

Four Ways to Pay Off Your Debt

1. Debt Snowball. With the debt snowball method of paying off debts, you start by listing your debts in order from lowest balance to highest balance. Then, you use all your available funds to begin paying off the lowest balance debt, while making the minimum payment on all your other debt. When the first debt is paid off, you move to the next one on the list – now putting all your available money toward that debt. Keep moving down the list until all your debt is repaid.

2. Highest Interest Rate First. A variation of the debt snowball method is paying your debts off in order from highest interest rate to lowest interest rate. The method is the same – put all your money toward the debt on the top of the list. Only the order in which you pay off the credit cards is different. In some ways, paying the highest interest rate debt first is better because you save interest over time.
   
   
   

 

Lowest Balance vs. Highest Interest Rate

Experts disagree on whether it’s better to pay off the lowest balance or the highest interest rate debt first. Those in favor of paying the lowest balance first say paying off a debt quickly helps you build momentum. On the other hand, paying the highest interest rate debt first saves money on finance charges.

For example, you have three credit cards:

	Interest Rate	Balance	Minimum
Visa	11.9%	$6,000	$10 or 3%
MasterCard	14.9%	$8,000	$10 or 3%
Discover	18.9%	$9,000	$10 or 3%

Under the debt snowball method, you would pay off the Visa first, followed by the MasterCard and then the Discover. If you could put $500 toward your debt each month, you would have your debt paid off in 5 years, 3 months and you would pay $9,964 in interest.
On the other hand, if you pay the highest interest rate balance first, it would take you 5 years, 2 months to repay your debt and you would pay a total of $9,500 in interest (saving $464 versus the debt snowball method).

3. Increase the minimum on all your credit cards. You can pay off your debts, by sending a little extra every month to all your creditors and lenders. This method isn’t as strategic as the two methods mentioned before, but if you stick with it, it will accomplish the goal.

4. Use your savings. If you have money in a savings account, you can cash it out and use it to pay off your debts. Your debts will be repaid quicker and you can rebuild your savings using the money you would have been paying on your debt. Avoid using your emergency fund to pay off credit card debt. That money should be used for financial emergencies only.
   
   

 

Benefits of Using a Professional Company

Though you can work to pay off your debt on your own, it may benefit you to use a professional debt consolidation company. A professional debt consolidator can work with your creditors to lower your interest rate and minimum payment. This can lower your overall debt payments and the amount you’d pay in interest. You might also benefit from a debt consolidation company if you have trouble organizing your payments and remembering your due dates. Because debt consolidation combines your total payment, you’ll only be responsible for making one payment by one due date.

To get a free debt analysis, fill in the form above and one of our professional debt consolidation specialists will contact you.