Debt Reduction - Debt Snowball vs. Debt Avalanche

Is Debt Snowball Better Than Debt Avalanche?

There are a few different debt reduction techniques that are very popular amongst which are the so called "debt snowball" and "debt avalanche" debt reduction methods.

There’s a lot of debate over whether debt snowballing is better than other techniques such as the debt avalanche debt reduction method (paying the highest interest rate loan first).

Debt snowball is the debt reduction technique of paying your loans by starting from the smallest debt and working your way up to the biggest one, like rolling a snowball. When the first loan is paid in full you allocate the payment from this first loan to the next highest one. As each loan gets paid, the pay down amount getting applied to the next largest one gets larger each time – hence the term ‘debt snowball’.

(Read more about debt snowballing here)

Debt avalanche is the debt reduction technique of paying off the loan with highest interest and then moving down to the debt with the next higher interest and so on.

Which technique would be better to choose If you are really serious about getting gout of debt?

The mathematics favor the debt avalanche, the psychology favors debt snowballing.

Should you have a $2,000 balance at 10% interest, and a $6,000 balance at 18% interest, it would make no financial sense to focus on paying off the lower amount first. So when there are large differences in the interest rate on each account then the snowball method would not make the most financial sense.

People with more financial discipline can make quicker headway by paying off the loans with the higher interest rates first. However, attacking the smallest loan first, whilst still maintaining minimum payments on everything else is a great strategy so long as you follow through on the plan and step up to the next smallest loan each time and knock those loans on the head for good!

If you’re serious about eliminating debt, creating wealth and achieving financial freedom then why not sign up NOW for more insider secrets on debt reduction at www.MillionaireMindsetSecrets.com for FREE.

To the readers: Which debt reduction technique would suit you better: debt snowball or debt avalanche?

Debt Reduction - Debt Snowball & Retirement Plans

Should One Make Retirement Contributions During the Debt Reduction Process?

In my previous post Debt Reduction – The # 1 Way of Eliminating Debt!? I reviewed the debt snowball technique for debt reduction as one of the most popular way to eliminate debt.

The reason it’s named ‘debt snowball’ is because you start with the smallest debt and work your way up to the biggest one, like rolling a snowball. When the first loan is paid in full you allocate the payment from this first loan to the next highest one. As each loan gets paid, the pay down amount getting applied to the next largest one gets larger each time – hence the term ‘debt snowball’.

With debt snowball technique for debt reduction arises the dilemma whether to make retirement contributions during the debt reduction process or not since the idea is to use all free capital for the debt reduction plan.

Some financial advisors argue that all contributions are to be put on hold during the debt snowball, thus freeing up more money to make payments. However, if this is the case, it is recommended that retirement contributions should not be put on hold for more than 2 years. Others dispute this practice, citing the cost of compounding interest to be greater than the gains made from paying off debt. It’s really your call to make based on your financial priorities.

If you’re serious about eliminating debt, creating wealth and achieving financial freedom then why not sign up NOW for more insider secrets on debt reduction atwww.MillionaireMindsetSecrets.com for FREE.

To the Readers:

Would you make retirement plan payments while trying to reduce your debt through debt snowball?

Debt Reduction - Eliminate Debt The Snowball Way - Steps 4-6

In my previous post i reviewed the first 3 steps of the very popular debt reduction technique known as the debt snowball.
The first three steps in using the debt snowball technique to eliminate all your debts were:

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

Debt Snowball Step #2: Only Pay the Minimum Amount on Each Debt

Debt Snowball Step #3: Make Extra Payments on the Smallest Debt
The next steps are:

Debt Snowball Step #4: Once the Smallest Loan is paid in Full, Celebrate!

I don’t think this step needs much explanation! Needless to say don’t use any additional lines of credit to pay for your celebration!

Debt Snowball Step #5 Tackle the Next Smallest Loan

Now that the smallest loan is paid in full, you add the old minimum payment (plus any extra amount you were paying) from the first loan to the minimum payment on the second smallest one, and apply this new sum to repaying the second smallest.

Debt Snowball Step #6: Repeat Until All Debt is Paid

Repeat the process with each subsequent debt. In theory, by the time the final ones are reached, the extra amount paid toward the larger debts will have grow quickly, similar to a snowball rolling downhill gathering more snow (thus the name).

Note: A first home mortgage is generally not included in the debt snowball method, but is instead paid off as part of a larger financial plan. Many financial plans recommend pay off home mortgages in a later step, along with any other debt which is equal to or greater than half of one's annual take-home pay.

If you’re serious about eliminating debt, creating wealth and achieving financial freedom then why not sign up NOW for more insider secrets on debt reduction atwww.MillionaireMindsetSecrets.com for FREE

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.

If you’re serious about eliminating debt, creating wealth and achieving financial freedom then why not sign up NOW for more insider secrets on debt reduction at www.MillionaireMindsetSecrets.com for FREE.

Debt Reduction – The # 1 Way of Eliminating Debt!?

Reducing Debt is a No. 1 priority for anyone who wants to be financially free

There are a few different debt reduction techniques that are very popular. Here we examine one ultra-simple technique known as the ‘debt snowball’ method and ask whether it is the # 1 method of eliminating debt?

There are many different strategies for getting on top of debt. One popular technique is known as the debt snowball. The reason it’s named ‘debt snowball’ is because you start with the smallest debt and work your way up to the biggest one, like rolling a snowball. When the first loan is paid in full you allocate the payment from this first loan to the next highest one. As each loan gets paid, the pay down amount getting applied to the next largest one gets larger each time – hence the term ‘debt snowball’.

The reason this method is so popular is that paying the smallest debt off first gives you a quick win early on, giving you momentum and so you are more likely to stay with the plan.

Below are the steps to applying the debt snowball technique for eliminating debt:

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

Debt Reduction Step # 2: Only Pay the Minimum Amount on Each Debt

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

Debt Reduction Step # 4: Once the Smallest Loan is paid in Full, Celebrate!

Debt Reduction Step # 5: Tackle the Next Smallest Loan

Debt Reduction Step # 6: Repeat until all Debts Are Paid

Read more on all this steps in my next blogs.

The power of the debt snowball is in the momentum you obtain as you eliminate each debt. As well as that there’s the financial power you get from applying payments from previous loans onto the next ones, snowballing your payments. If you’re serious about eliminating debt, creating wealth and achieving financial freedom then why not sign up NOW for more insider secrets on debt reduction at www.MillionaireMindsetSecrets.com for FREE.

Eliminate Debt: You Need To Know About Negotiating with Creditors

Nearly everyone finds themselves in debt repayment and cash-flow difficulties at least once in their lifetime. There are various ways you can reduce, manage and eventually eliminate debt.

Here’s how you can reduce debt by negotiating with creditors. This is just one of a number of debt elimination approaches you can take to get on top of your finances, eliminate all your debts and wipe your financial slate clean.

Everything in life is negotiable, even debt! Only one thing worries a lender more than not making profit and that is bad debts i.e. not been able to collect the capital amount lent (never mind the interest). You can renegotiate interest rates, payment terms, fees, penalties etc. Never take a payment demand at face value. Always negotiate with your lenders. Here are a few guidelines on how to negotiate with creditors.

Rule # 1 Do Not Avoid Your Creditors

Fear may tempt you to avoid lenders and debt collectors who demand payment. But you can really benefit from talking to them. Often, if you talk to your lenders, you can let them know you are doing your best to pay your bills, but are having difficulty making the payments demanded. You are now at least communicating with your lender. If nothing else, this gives you time to address your financial situation and takes the pressure off. Nothing annoys a debt collector more than unanswered emails, phone calls, etc. It is best to state your position with them early on and write to them explaining your situation and proposing a payment plan. (Read More)

Rule # 2 Always Focus on Getting Agreement

Some creditors will be more aggressive and demanding than others. However, no matter how much huff and puff your creditors exude, always keep your calm and stay focused on reaching an agreement. This is a critical rule in any negotiation. (Read More)

Rule # 3 Pay Only What You Can Afford to Pay

When negotiating an agreement with your lender(s) you would do well to devise a payment plan in advance based on your actual income and expenditure. Remember, this is YOUR repayment plan. Get agreement on your repayment plan and not their version of your repayment plan and get it in writing. Lenders will want to see an income and expenditure spreadsheet so have this ready. However, do not let creditors trawl through your spreadsheet demanding explanations. Be firm and tell them politely it’s none of their business really. You owe them money, nothing else.

Utilizing simple yet powerful debt elimination approaches like negotiating with lenders can really help you reduce and eliminate debt and put you on the road to real wealth creation. Find out more ways to eliminate debt and get on top of your finances at www.millionairemindsetsecrets.com. You can also sign up right now for debt elimination tips for free.

Eliminate Debt: You Need To Know About Going “Cash Only”

If you want to reduce the debt that you are dealing with in your life, there are various ways that you can do this task. Here’s how you can reduce debt by going “cash only”. This is just one of a number of debt elimination secrets you can use to get on top of your finances, eliminate all your debts and wipe your financial slate clean.

Secret#1: Going “Cash Only”

One way that you can drastically reduce debt that you have is by using cash to pay for your purchases. You are in debt because of credit you got so it makes sense to eliminate further use of credit to get you out of trouble. While it can be challenging to get on top of debt, the first thing to consider is changing the habits that resulted in you getting into debt in the first place. It will be worth the effort in the long run. Here’s how you can reduce debt by going “cash only”.

Cold, Hard-Cash

Using cash to pay is an excellent habit to develop to get on top of your debts. The average U.S. household spends $1.22 for every $1.00 it earns. If you continue to use credit (credit cards, personal loans etc.) all the time, you will build up more and more debt. As the debt piles up, you can begin to lose control, fall behind on your monthly payments and this ultimately creates massive financial stress and strain. Instead of reaching for your credit card the next time you want to make a purchase, stop for a second and think about paying for it in cold, hard cash. This way you start buying only what you can afford with the cash you have. (Read More)

Set a Monthly Budget

The basic principle is that you set a monthly expenditure budget and withdraw the cash amount required for your purchases. For example, if your net monthly income is $2,000 I first recommend you automatically save 10% of this amount i.e. $200. You might think you can’t save 10% but I bet you can. If 10% is a stretch at first, save 5% for the first few months and step up to 10%. Now, supposing your essential expenses e.g. mortgage, rent, insurance, utilities, food and clothing etc. comes to $1,000 per month, that leaves you with $800 left for disposable income or what I call “stuff” (eating out, movies, entertainment etc). I call it stuff because its stuff you don’t need but you want. (Read More)

Making Small Sacrifices

Anyway, I recommend you withdraw $200 in cash at the start of every week from your bank account and force yourself to live within this budget, paying for everything in cash.
If you start using cash only, I guarantee you’ll find it much more difficult to part with cold hard cash than whip out a credit card! Now, this will mean making do with less but you will quickly adapt to living within your ACTUAL financial means. Making small sacrifices in unnecessary expenditure will get you back on the road to disciplined money management and help avoid financial peril. (Read More)

Utilizing simple yet powerful debt elimination techniques like going “cash only” can really help you eliminate debt and put you on the road to real wealth creation. Discover numerous ways to eliminate debt and get on top of your finances.

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