Debts can become a major issue in one’s life if they are not resolved on time. It can scare you psychologically and financially on the long run for a variety of reasons. We use many strategies to overcome this dilemma over the course of time. One of the most effective strategies is the ‘DEBT Snowball’ method. It is believed to be the most effective way to get out of debt. There are several stages to this process that must be followed correctly and precisely in order to produce the best results.
1. Analyze & prioritize Debts.
In order to analyses and prioritize our funds, we need to know how big and small our various debts are. Thus, creating a list of all our debts would be the first step towards implementing this strategy. In the process of making a list we should take into account the interest rates of each of our debts. The debt with the highest interest rate will find its place at the top. This pattern should be repeated for all following stages, with the debt with the second-highest interest rate coming in second, and so on. It should conclude with the last debt on the list, which has the lowest interest rate.
2. Determine on how much amount will be set aside for repayment.
Having a well-organized and personalized list aids us in the next step of decision-making. We can now examine our financial situation to determine how much we can afford to pay toward our debts each month in total. The funds with which we decide to pay off our debts should be used in a specific way. This sum should at the very least be equal to the sum of our minimum payments, if not more. It is important in deciding an amount that we can set aside each month for outstanding debts. This sum should be fixed and paid on a monthly basis, with no breaks or delays.
3. Target the Debt with highest Interest Rate.
We can now move on to the next stage once you have decided on your monthly allowances for debt repayment. Which is the manner by which you pay your various debts. All of your debts except the debt with the highest interest rate must now be paid by minimum payments every month. The debt with the highest interest rate should then be prioritized. The remainder of the funds should now be used for debt reduction, specifically to pay down the debt with the highest interest rate.
Following these steps on a monthly basis will help you knock off the debts that were hurting your pocket the most. Getting rid of that will provide you with a sense of accomplishment. You now have the ability and confidence due to the fact that by now one or more of your debts have already been paid off.
After you’ve paid off your first debt, you don’t spend your extra cash on new purchases. Instead, you apply the extra funds to the next debt on your list. Thus, in no time, you will be able to pay off all of your debts and live a stress-free and peaceful life, free to spend your money however you see fit. So Debt Snowball method is a very relevant and practical method to get rid of your threatening debt lists.