There are so many people who are struggling under a massive pile of debt with no way of getting out. You’re paying all your minimum payments and then as soon as you pay, they whack a humongous interest charge on there which is just as much! How in earth will you ever get out of this circle of debt? The answer is by using the snowball method. It’s a really simple method to paying off debt which helps you do it in the most cost effective way.
First, you’ll need to have a look at your credit card statements and order them based on their interest rates. This will help you to figure out which one should be paid off first. So let’s say you have 3 credit cards, and the interest rates are 16%, 18% and 20%. You’ll want to pay off the 20% first because you’ll be paying a higher rate on your balance. If you have two or more credit cards which have the same interest rate, choose the one with the lowest balance to pay off first.
So once you’ve ordered your debt correctly, you need to look at your budget and see how much cash you have available to throw at your debt. If you need help creating your budget, there’s a great post on it here. You need to make sure that you are paying all of your minimum payments in time, and any extra cash goes on the debt with the highest interest rate. Keep doing this until that debt is completely paid off and then you take the cash that you were paying towards the first debt and pay that towards the next highest interest debt.
It may seem like a lot of work and for a long time, but once you get that first debt cracked, you’ll really start to see movement in your debt balance. I mean, if you’re paying £200 a month on your first debt and £50 on your second debt. Once you’ve paid off your first, that’s £250 a month going into the second one. That’s incredible and will make a huge a difference.
To learn more about the most effective ways to pay down debt and take steps towards your financial freedom, I highly recommend this book – The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness
I’m using this system myself for my own debt and I can honestly say it has changed my life. That amazing feeling you get when you see those numbers decreasing on your balance, it’s incredible. I also use the cash envelope system to make sure I’m really getting the most out of my budget and this has allowed us to save so much extra cash to go on our debts! I completely recommend using both of these systems together to really make an impact!
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