Debt Snowball Method
There are many debt reduction strategies available to you, including well-known ones such as loan consolidation. But in addition to these, various techniques for repayment have also been developed. One such strategy is known as the debt snowball method. This strategy essentially involves repaying smaller balances first and moving up to larger ones. This gradual increase is what lends the technique its name, since the payments slowly build like a rolling snowball.
The debt snowball method applies best to credit cards and other types of revolving debt. In contrast with many loans, which require regular installment payments, revolving debt payments vary in frequency and amount. For example, with revolving debt, it is possible for debtors to make several small payments, or to pay off debt in one lump sum.
Creating and using a repayment plan with this method consists of the following steps:
- List all debts from smallest to largest.
- Determine how much money you can afford to pay towards debts.
- Plan to make the minimum payment on every source of debt.
- Use the remaining money to pay off the smallest debts first.
- Once the smallest debts have been paid off, reallocate the money that would go to paying its minimum to the next-smallest debt.
- Repeat.
Sometimes this strategy is criticized for not emphasizing repayment of the highest-interest debts first. Many economists recommend paying highest-interest debts first, and ultimately this results in paying less money. However, the debt snowball method can be easier for individuals in practice, because it reduces the number of debts individuals have to juggle.
Contact Us
Ultimately, only an experienced bankruptcy attorney can help you find the exact fit for your circumstances. To better understand your debts and debt repayment, and to determine whether or not bankruptcy is right for you, contact the experienced West Palm Beach bankruptcy attorneys of Eric N. Klein & Associates, PA today at 561-353-2800.
