4 Key steps of snowball debt reduction method

There are many ways by which you can reduce debt. But, snowball debt reduction method is the most popular way to get out of debt. This debt reduction method was popularized by a renowned financial expert Dave Ramsey. According to this method you need to pay back the smallest debt first and the largest debt last.

Key steps of snowball method
The key steps of snowball debt reduction method are given below:

  1. Analyze your debt: At first make a list of your debts in a spreadsheet in an ascending order (smallest to the largest). Then calculate the minimum monthly payments that you have to make on each credit card.
  2. Analyze your budget: The second step will be to evaluate your income and necessary expenses. Cut down your luxury expenses. You must not use any credit card. You should try to increase your monthly income by doing part-time jobs, forex trading, hedge financing etc. You must try to save money so that you can have some spare cash in your hand for emergency purposes.
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  4. Payments: Start making minimum monthly payments on each card. Check how much extra amount of money can you pay towards the smallest debt. If you can afford then pay an extra amount of money on top of the minimum payment towards the smallest debt. You should continue this process until the smallest debt is eliminated.
  5. Continue the process: When the smallest debt on the list has been eliminated, then you have to continue the process with the second debt. This means that the minimum payment and the extra payment that you we're making on the first debt have to be applied on the second smallest loan until it is paid off. However, you should not borrow any money from friends, relatives so as to make the extra payments. This will incur new loans. When the second debt is paid off then continue the same process with other debts until they are fully paid back.

In short, according to snowball debt reduction method, you attack and eliminate the smallest debt first while maintaining the minimum monthly payments on remaining debts. Then you repeat the same process with the remaining debts.

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Posted in Business Service Post Date 12/05/2015


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