Debt is an unfortunate situation that plagues many Americans. Student loans, credit cards, auto, and personal loans are some of the ways people are struggling with debt. Part of the problem is that we do not like delayed gratification. We want our desires immediately. Advertisers call us to partake in the experience of owning a product. We yearn to be a part of the club of people who already enjoy the product. We buy a moment of happiness today with tomorrow’s money. Then we are unable to pay for tomorrow’s obligations because we are still paying off yesterday. Debt is a disease. We need to treat it as such and avoid it everywhere we can.
If you are struggling with debt, the first thing you need to do is to cut off your access to credit, for now. Do not open another credit card, instead cut the cards up. The account will remain open until you pay it off. But once you pay it off you do not want to start the cycle again.
If your outstanding debt is derailing your efforts toward financial stability, we got you. Let’s take a look at the snowball method to eliminate your debt.
Gather all of your debt statements to understand the balances and the associated interest rates you are subject to. The Snowball method is fairly simple. Start with the smallest total debt (Debt A) and pay it off while making at least the minimum payment on the other accounts(Debt B, C, etc.). When Debt A is paid in full use the same payment and add it to the minimum payment on Debt B. When Debt B is paid in full do the same for Debt C and so on. Keep doing this until all of your debts are paid off. This is called the Snowball method. As you relieve your debt, you will hopefully get closer to not being overspent.
Extra Payment |
$200.00 |
|||||
One-Time Initial Payment |
$200.00 |
|||||
Debt 1 |
Debt 2 |
Debt 3 |
||||
Balance |
$1,200.00 |
Balance |
$1,500.00 |
Balance |
$3,000.00 |
|
Minimum |
$100.00 |
Minimum |
$100.00 |
Minimum |
$100.00 |
|
Interest Rate |
15.0% |
Interest Rate |
12.0% |
Interest Rate |
10.0% |
|
Month |
Payment |
Balance |
Payment |
Balance |
Payment |
Balance |
1 |
$500.00 |
$700.00 |
$100.00 |
$1,400.00 |
$100.00 |
$2,900.00 |
2 |
$300.00 |
$405.00 |
$100.00 |
$1,313.00 |
$100.00 |
$2,823.33 |
3 |
$300.00 |
$106.31 |
$100.00 |
$1,225.13 |
$100.00 |
$2,746.03 |
4 |
$106.31 |
$0.00 |
$293.69 |
$940.76 |
$100.00 |
$2,668.08 |
5 |
$0.00 |
$0.00 |
$400.00 |
$546.16 |
$100.00 |
$2,589.48 |
6 |
$0.00 |
$0.00 |
$400.00 |
$147.63 |
$100.00 |
$2,510.22 |
7 |
$0.00 |
$0.00 |
$147.63 |
$0.00 |
$352.37 |
$2,175.83 |
8 |
$0.00 |
$0.00 |
$0.00 |
$0.00 |
$500.00 |
$1,689.80 |
9 |
$0.00 |
$0.00 |
$0.00 |
$0.00 |
$500.00 |
$1,199.71 |
10 |
$0.00 |
$0.00 |
$0.00 |
$0.00 |
$500.00 |
$705.54 |
11 |
$0.00 |
$0.00 |
$0.00 |
$0.00 |
$500.00 |
$207.26 |
12 |
$0.00 |
$0.00 |
$0.00 |
$0.00 |
$207.26 |
$0.00 |
You mustn’t justify overspending or spending on credit to reward yourself as this will only result in continued debt. Use the Debt Snowball Payment Calculator in the SocietalGlitch Personal Finance Workbook to plan your own Snowball payments.