What is a Debt Snowball?

I certainly have never heard of it, but I can tell you that after reading the this article, The Debt Snowball, I think we have just found another area of clarity to our situations. Take that Piper!!!

Basically, we all struggle with our debts and which of those to pay first, and why, and when and blah blah blah. But, this is another great example of how simplicity is key.

In the article it stats, "List all of your debts, in descending order by interest rate, regardless of the balance (accounts with highest interest rates first).
Determine the most money you can make available from your budget to apply to the debt snowball. The more you can apply, the more money you'll save and the faster you'll pay off your debt.
Each month, apply the minimum payment PLUS the extra money you've made available from your budget to the first debt (the one with the highest interest rate). On all your other debts, pay only the minimum payment. Continue to do this until the first debt on the list is paid off.

Take the minimum payment AND the extra payment you were making on the first debt and add them to the minimum payment you've been paying on the second debt. Pay that amount on the second debt each month until it's paid off, then move on to the third debt. Continue to pay only the minimum payment on all debts except the one you're "snowballing."

Repeat this process until all of the debts are paid off ".

Get it? Yes, no, maybe?

I think that we all do a great deal of trying to "tilt the tables" in our favor, daily. Whether it is finding the best gas price, good use of sales, etc, but here we are doing the same thing. If you are required to pay a minimum amount on any of your credit cards, and have been utilizing all of the budget techniques we have talked about, then each week or month, you will have extra cash on hand, and instead of paying down each card little by little by little, you can pile all of that saved cash, use a little to pay the monthly minimums on your credit cards, and then use the rest to make a massive dent in the first one you select. And when that card is paid off, you move onto the next, and so on, and so on.

Start with the one that has the highest interest rate, or start with the one that has the highest balance, and you will not just chip away at that debt, but blow it straight to hell!!!

This way you are staying current on all your cards, and you are paying off each card in major leaps instead of little steps. And those are wins people!

Also, to show you how else this will pay off; you will see your credit score rise quicker as well. As your amount of utilized credit drops in massive quantities over each month, your credit score will increase, and by the time you have all of your cards paid off, your credit score will definitely be in a much, MUCH better place.

This book, Dirty Little Secrets: What the Credit Bureaus Won't Tell You, is something that I have personally red, and utilize to help improve and maintain my score, and one of the main points they constantly talk about is "Credit Utilization". To keep it short, let's say that you have one card with a limit of $100. If you pay your balance every month, and the credit agencies never see that you utilize any of your credit, and while they will not lower your score, they will also not raise it with any great speed. What they do recommend is to use your cards but only (and I mean only as the highest portion) to only utilize under 25% of your available credit every month. So, if your card has $100 available, feel free to use under $25 of it, and pay it off as well, on time. This way you are showing that you are worthy of a better credit rating, because your a) use it, b) use it in reasonable quantities, and c) pay it off monthly.

So get your balances under that 25% limit and while you still have a bit to go, you can still see a major jump in your credit score!

Have any of you used the Debt Snowball? If not, do you think it is worthwhile?

As always, thank you...The Runner