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Snow Ball Debt Reduction Article

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´╗┐Defining Snow Ball Debt Reduction




Have you heard of snow ball debt reduction? Many people are not familiar with the term but the method advocated by Dave Ramsey. Snow ball debt reduction is a specific plan for paying off all of your debts. As the name suggests, the method uses the image of a snow ball rolling down a hill. It starts out small but grows larger as it adds snow to its mass on the way down. More than this, the snow ball gains momentum, traveling faster and faster as it reaches the bottom.

Essentially, the snow ball debt reduction plan applies these images to realm of debt. The method focuses your efforts. It starts with organizing all of your debts so you are able to establish the plan in an easy to manage way. The snow ball debt reduction approach is all about achieving tangible results. It is centered on all types of debts including personal loans, credit cards, auto loans, student loans, as well as payday loans. The only exception is your home mortgage because there are some tax benefits with holding on to this payment over time.

The snow ball debt reduction method is really a very simple plan when you see how it works. You begin by listing all of your debt starting from small amount owed to largest in a spreadsheet. Once you have created a definitive list, you need to determine the maximum amount of your monthly income can be allocated to paying off your debt. Include the payment amounts for each one of your different debt accounts. With snow ball debt reduction, the intention is to pay the minimum required payment on all of your debts except the one at the top, meaning the one with the lowest balance. You will allocate extra for this payment each month with a goal of paying it off quickly.

Once you have eliminated the smallest debt you have, you can move on to the next one on the list. The money you used to pay on the previous debt will be transferred to this second smallest debt. After it is paid off, you then reallocate the funds you've freed up to pay on the third debt amount on your list. You can see the analogy of the snow ball rolling down the hill, picking up momentum, and adding mass in view now. This is the program. You keep moving on and using the added funds you have available to pay more on the next debt. You are paying it off faster.

This is really all there is to the snow ball debt reduction method. You merely continue use the momentum of paid off debts to keep paying off each debt on your list until all of the accounts have been closed. This method is focused on the psychology of the debtor, meaning that it deal with how the debtor perceives the effects of tangible results. When you see that a particular debt has been eliminated you find more motivation to continue using the method to get rid of subsequent debts.