The Debt Snowball Effect was ‘created’ by Dave Ramsey. The normal logical step to take to pay of credit card debt is to do the follow:
1.List your debt from highest interest rate to lowest interest rate.
2. Designate a certain amount of money to pay toward debts each month.
3.Pay the minimum payment on all your debt except the creditor with the highest interest rate.
4.Throw every penny at the debt with the highest interest rate on your list of creditors.
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 alternative steps:
1.Rank your debt to creditors from lowest balance to highest balance.
2.Allocate money to pay toward debts each month.
3. Pay the minimum payment on all debts except the one with the lowest balance.
4.Throw every other penny you have at the debt with the lowest outstanding 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 Dave Ramsey way helps you psychologically, because it gives you a massive boost to know you have paid off one of your creditors. You can then cut up that card and close the account and one of your debts are no more.
The customer that is in debt counseling will have to pay all creditors evenly according to the proposal of the debt counsellors. 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 tactic will keep the over indebt customer motivated and focus to pay off his debt of 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