Debt Relief with the Debt Snowball

February 10, 2009 by  
Filed under Debt

The debt snowball is a kind of debt relief that one manages himself in order to get out of debt. Yes, it is possible to get out of debt and it can be done, no matter how much in debt you are.

First and foremost, you must come to the realization that your debt is not going to go away overnight. Debt usually takes years to accumulate and it will take months or years to get out of debt. Let go of dreams of winning the lottery. In order to get out of debt, you have to be determined and patient. You also need to stop using all of your credit cards.

Next, find out how much money you can give out. Try to lessen your expenses and increase your income in order to have enough money to live comfortably, pay bills, and make important monthly payments on your debts. Get rid of any bills that aren’t essential, as well, such as magazine subscriptions and gym memberships.

Then, you should start saving. Before you can operate the debt snowball, you should have at least around $500 save for an individual or $1000 for every couple or family. This money must be set aside for emergency situations, such as car reparations to get to work. Food and rent should be covered with your income.

These savings must be there, just in case of emergency, and it will prevent you from borrowing money or using the money that you have decided to use for monthly payments.

Now you can officially start the debt snowball. You should list down all of the debts that you owe, no matter how big or how small. Add everything in there, even if it’s just $5 that you borrowed from someone that they never really wanted back. Arrange the list from the lowest amount of total debt to the highest amount of total debt. The list should start with something like the $5 that you owe a friend and end with a mortgage or huge debt loan.

Next, take the extra monthly money that you possess – the money that you used to put into savings – and start paying off the debts, from the smallest ones to the biggest ones.

A lot of people will advise you to pay the more expensive debts first and while this may sound like it makes sense, it doesn’t actually work because you will not be motivated by only saving a couple of pennies here and there. People in general are motivated when achievement is reached and we can achieve things by crossing of one debt on the list at a time.

Think about paying up that $5 to your friend. You will feel much better doing that than paying off a bigger debt right away. The aim of the debt snowball is to keep you motivated by paying off debts and giving you that sense of achievement as much as possible, right from the start.

To get an even stronger sense of achievement, treat yourself whenever you strike off a debt on the list. Don’t treat yourself to anything expensive, naturally, but something you merely enjoy. If you have a spouse or a family, treat them all. Debt relief should be something the whole family should be happy about.

Once you feel like you have achieved something after paying back the first debts, you will want to keep going. This is why it is coined as a debt snowball – you start it and it keeps rolling on its own. The debt snowball is a great way to achieve a great kind of debt relief.