Nobody wants to be a slave.
However, as long as you have outstanding debts that keeps on ballooning, then you are not financially free.
How do you pay off your debts including your credit card bills? Would you pay them according to whoever gives you a call first? Do you pay the most consistent collector, or just pay blindly without any plans?
If you are juggling too many debts, then you must seriously consider how to successfully get out of debt.
Debt Snowball Method
Remember how cartoons portray a rolling snowball down the mountain catching up a fictional character? It starts small, and then it grows bigger and bigger.
The same goes with the Debt Snowball Method. This method has been popularized by Dave Ramsey an American businessman and radio host.
- List your debts from least to greatest amount.
- Pay off the least amount first while paying the minimum required amount on the other higher debts.
- Cross out the paid off debts, then focus on the next debt on the list.
Why does it work? Because it has a strong psychological power. Aggressively pay the smallest amount first can give a psychological boost and you can immediately cross out the debt. After crossing it out, you can use the extra cash to pay off the next debt on the list.
Seeing that you are finally making things work can give you a breather.
Debt Snowball Calculator
When using a Debt Snowball Calculator, you can easily manage your debt reduction. With these types of calculator, you have to enter the creditor or lender, the amount owned, interest rate, and payment amount per installment.
The calculator will tell you how much the interests cost, the number of installments payments left for each debt, and total balance owned. This way you can track your payments in just a breeze.
If you have a car loan, make sure not to include the monthly tax and insurance because you still have to pay for these long after you have paid off the car loan.
Debt Snowball App
- Debt Free gives a quick summary of all debts though the Percentage Progress Bar, Early Payoff Date, and Interest Savings. You can view your debts in pie charts either by category or remaining amount. This app work in iPhone and is passcode protected for your financial security.
- Debt Payoff Pro has its own Mortgage Calculator, loan calculator, and Payoff Date Calculator. It can show you how each payment can affect your payoff date and total interest paid.
- Debt Snowball calculates the total debt amount and interest you will have to pay. It will show you how your minimum payment can decrease the amount of time to pay off all of your debts.
Debt Avalanche Method
Some people likes the Debt Avalanche Method more than the Debt Snowball Method. This method prioritizes with the highest interest rates first.
- List your debts from highest interest to the least.
- Write the minimum payment on each debt.
- Knock off the debts towards the minimum interest rate.
This way you will get out of the debt quickly. And since the highest interest rates will be the ones to be crossed out first, you can save on the interest charge.
While it seems more logical than the snowball method, the avalanche method will take more time before you can cross out a debt on the list. It could take months and you must not lose focus.
Avalanche Debt Reduction Calculator
With an Avalanche Debt Reduction Calculator, you can easily see how fast you can get out of debt. Of course, we know that getting out of debt is not easy, but having a plan and seeing how each payment can help you settle your debt can strengthen your determination.
If you prefer Google spreadsheet, you can get some versions for free. However, if you want a well-detailed calculator, you need to purchase it online.
Debt Avalanche App
- Undebt.it can help you track your due dates while also prioritizing your credit list in Debt Avalanche Method. You will also see your monthly progress aside from the overall progress.
- Unbury.Me can let you compare the two debt reduction strategy. You can view the difference of the total debt to pay. You can also view the debt free date and the total interest you have to settle.
Which method should you use?
There is a chance that the method which works for a friend or relative will not fit for you. We all have different financial circumstances.
Let’s say you want the avalanche method because the period of debt payment if shorter, but you could easily lose focus. Then, it might not work because it could take some time before you can cross out a debt on the list.
Also, you must not underestimate the psychological boost the snowball debt reduction strategy can bring. This method may take longer but you can immediately cross out debts on the list.
In the end, both methods will work only if you focus on your goal. And that is to be eventually debt free. Do not be a slave to your debts forever.
It may need self-discipline and focus for months or even years, but it will surely be worth it.
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