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.

Debt Reduction: Amazing Little-Known Secrets about Eliminating Debt

Debt reduction should be a key focus for anyone with personal debt and especially anyone with personal loans they are finding difficult to pay each month. Experts recommend debt consolidation loans for recovering control over multiple loans and getting on top of personal money management. However, there are also other amazing little-known Do-It-Yourself steps you can take yourself to eliminate debt faster.

Rising interest rates, multiple personal loans, mortgages, large credit card liabilities and unemployment are making it increasingly difficult for people to meet their monthly loan repayments that, in the good times, weren’t a problem. If this is your situation you will be all too aware that missing loan repayments causes a lot of stress and will result in you developing a negative credit history. This decreases one’s credit worthiness with financial institutions and therefore your ability to borrow. And access to credit and borrowing (used wisely) is essential if you wish to create wealth using Other Peoples Money and develop financial independence and later financial freedom.

Nowadays, many people are going for Debt Consolidation Loans or what they call Secured Personal Loans to get on top of their monthly repayment needs. Ideally before taking out a Debt Consolidation Loan or a Secured Loan, you should explore other credit management options such as:

1.0% Credit Card Balance Transfers

This is essentially moving some of your existing high-interest credit card debt to a new credit card provider with a 0% interest rate. Typically, you will get 0% interest on balance transfers of existing debt for 6-12 months. Used correctly, this is one of cheapest forms of borrowing. But the one caveat is that you need to be sure you can pay off the balance before the 0% interest period expires.

2.Paying off Debt Using Savings

It is a much better money management principle to use your savings to pay off debt; the interest on savings accounts is always going to be much less than the interest you pay on loans. There is little point in having savings on one hand and personal debt on the other. When you think about it, you’re basically borrowing from yourself and paying interest for the privilege which is pretty crazy! ... (Paying Off Your Debt - read more)

3.Remortgaging

Remortgaging (sometimes referred to as refinancing) is basically swapping your mortgage from one lender to another. Your objective is to get a lower interest rate from the new lender. Make sure to check if there are any charges for switching. Remortgaging your home to pay off personal debt is overall a bad idea. The primary purpose of remortgaging is to reduce your interest rate and monthly mortgage payments. (Remortgaging - read more)

4.Renegotiating

Everything in life is negotiable, even debt! Only one thing worries a lender more than not making profit and that’s bad debts i.e. not been able to collect the capital amount lent (never mind the interest). So, you can renegotiate interest rates, payment term, fees, penalties etc. Never take a payment demand at face value. Ask and Negotiate. (Renegotiating - read more)

Be wary of debt consolidation and secured personal loans. Taking on debt to pay off debt is ultimately a bad idea. Trying to borrow your way out of debt could possibly lead to even greater financial difficulties.

Mastering debt reduction will ensure that money you earn isn’t flitted away carelessly and that you get to secure your financial independence! Discover debt reduction, money management and wealth creation techniques. Sign up for Millionaire Mindset Secrets for FREE now, you'll get instant access to insider secrets on Debt Reduction - www.millionairemindsetsecrets.com