The Debt Snowball Effect was ‘created’ by Dave Ramsey, the debt specialist. The normal logical steps to take to pay of credit card or any debt are to do the follow:
1. Order your debts from highest interest rate to lowest interest rate.
2.Allocate money to pay your debt each month.
3. Pay the minimum payment on all debts except the one with the highest interest rate.
4. Throw every other penny you can find at the debt with the highest interest rate.
5.When that debt is repaid, do not change or alter the monthly amount used to pay debts, but throw all you can at the debt with the next-highest interest rate.
But then Dave Ramsey came up with the following:
1.Rank your debt to creditors from lowest balance to highest balance.
2. Designate a certain amount of money to pay toward debts each month.
3.Pay the minimum payment on all your debts except the one with the smallest balance.
4.Throw every other penny you have at the debt with the lowest balance.
5.When that debt is repaid, do not change the monthly amount used to pay debts. Throw all the money you can at the debt with the next-lowest balance on your debt list.
The reason why you should do it the Dave Ramsey way is that psychologically it will give you a massive boost to know you have paid of one of your creditors. You can then cut up that card and close the account and one of your debts are gone.
When a customer is in debt counseling, he pays all creditors evenly according to that the debt counsellors set out for him to pay. The customer may make additional payments to creditors directly. So instead of paying off the account with the highest interest, the customer will make payments to creditor with the smallest outstanding balance. This basic strategy will keep the over indebt customer motivated and focus to pay off his debt faster.
If you are over in debt and cannot pay your creditors each month, you should apply for debt counseling.
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Tags: Debt Counseling, debt counsellor, debt managment, debt relief