Debt Reduction – Eliminating Debt The Snowball Way -Steps 1 - 3

There are many different ways to eliminate debt.

One very popular technique is known as the debt snowball.
These are the first three steps in using the debt snowball technique to eliminate all your debts and be financially free.

Debt Reduction Step # 1: List All Your Debts Starting with the Smallest Balance

List all your loans starting with the smallest balance first and ending with the largest balance. Credit cards, personal lines of credit, bank loans, student loans, car loans, 2nd mortgages (yes that’s debt too), home equity lines of credit, overdraft credit lines are all included. The most distinctive feature of the debt snowball strategy is that the order is determined by amount owed, not the rate of interest charged. However, if two debts are very close in amount owed, then the one with the higher interest rate would be moved above in the list.

Debt Reduction Step # 2: Only Pay the Minimum Amount on Each Debt
Find out from each lender what the smallest payment you can make on each loan is and only pay this minimum monthly payment. The reason you pay only the minimum amount on all other loans each month is so you can quickly pay off the smallest one first and not have to unnecessarily struggle to pay off all the others simultaneously.

Debt Reduction Step # 3: Make Extra Payments on the Smallest Debt

For the smallest amount owed you determine how much extra you can pay off whilst maintaining minimum monthly payments on the others. (It is this step that differs with other debt reduction strategies, focusing on paying off quickly the smallest amount owed rather than the amount with the highest interest rate)

Read more about the next steps in my following post.

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