Deep in Debt, Debt Snowball

I've been there - Department store cards, credit cards, personal loans, student loans, etc. Sometimes you really do feel as if you are underwater with weights on and you just keep sinking. We have talked a lot about how to prevent yourself from getting into debt, but this series I will talk about the different methods of getting out of debt. It's obvious that we need a game plan when approaching debt. I am not an expert, so I will show you several different methods designed by experts to help you reach the top of the water. Let's dive in! 

The first method we will discuss (and arguably one of the most popular) is the Debt Snowball Method.

The Debt Snowball approach is:

1. Order your debts from lowest balance to highest balance.
2. Designate a certain amount of money to pay toward debts each month.
3. Pay the minimum payment on all debts except the one with the lowest balance.
4. Throw every other penny at the debt with the lowest balance.
5. When that debt is gone, do not alter the monthly amount used to pay debts, but throw all you can at the debt with the next-lowest balance.

Finance guru, Dave Ramsey, is a proponent of the debt-snowball method and states that personal finance is "20 percent head knowledge and 80 percent behavior" and that people trying to reduce debt need "quick wins" in order to remain motivated toward debt reduction. In other words, if paying off debt motivates you, then this is the method for you. Some of us have a hard time paying on something and seeing little change, so pay off the lowest one first so you can see the light at the end of the tunnel.

Read more here: http://www.getrichslowly.org/blog/2006/09/28/in-praise-of-the-debt-snowball/

Next time we will go over more methods on how to pick yourself up from the weight of debt.

Chris