The “Snowball Method”
You may have come across “to good to be true” debt solutions while you were doing research on the web. Perhaps you’ve seen companies offering to write off of up to 60% to 70% of your debt with this-or-that method. If we at the UAE Money Expert have anything to say about it, it’s this:
“Beware, they are not always what they seem.”
When all of the advertisements are stripped away, these methods are just secured loans in sheep’s clothing. That means that if you fail to pay off your debt with that lender, then you’re liable to lose your car, your home, your retirement, and anything else that they can find to get their money back.
The debt you’ve accumulated isn’t going to magically cut itself in half. However, there are legitimate methods of decreasing that debt without taking your entire life to do so. One of these concepts is called the Snowball Method.
What is the Snowball Method?
It may be possible to relieve much or all of your debt via the Snowball Method. Before you even consider it however, it’s important to understand a few facts about it:
- You must have several recurring debts that you’re paying off every month
- All of these debts should have a unique interest rate.
- These bills are likely to be on cards of some kind, either credit or store cards
- These debts should (preferably) vary in size
To start, you’ll need a complete list of your recurring debts. These debts should be structured from the lowest amount to the highest.
Next, you’ll have to create a bare-bones budget. Cut back on everything that apart from the necessities. Compare your minimalist budget to your total income every month, and see just how much money extra that you have available to you. You’ll need this extra income—it’s going to help you rapidly cut back on your debt.
Once you’re on this budget, it’s time to put that extra money to good use. Identify the recurring debt with the smallest amount. Once you’ve found it, apply ALL of the savings onto that specific debt. Since it’s the smallest debt on the list, it shouldn’t take too long before it’s completely paid off.
The following step is critical. Once you’ve paid off your lowest debt, identify the next smallest debt on the list, and apply both your extra budgeted amount PLUS what you would have paid on the debt that you just finished paying off.
You can see how this method would quickly eliminate ALL of your debt. It’s simple, highly effective, and gives you a huge amount of control. It’s also highly motivating since you’re targeting the small debts first, wiping them out, and moving ever forward to those really big debts.