We all know that that debt starts with a single step and snowballs until you are in over your head. But did you know that you could use that same momentum to pull yourself back from the brink?
A high percentage of Canadians use credit for just about anything we live in an instant gratification society, and credit is our friend. People who have lost their jobs, or have a loved one who needs financial help, have to rely on credit to get themselves through those tough financial times. However you got there, it’s time to dig yourself out.
The Debt Snowball is simply momentum, using the momentum of that snowball to be debt-free in a certain amount of time. How would you feel if you had no debts? Lighter? Less stressed? No doubt.
Step One. Start by listing all your debts, lowest to highest.
Mark beside each debt the minimum payments you need to make on each to preserve your credit.
Step Two. From your budget decide what you can afford to put towards your debt each month.
Take that amount from your budget, be it fifty dollars or five hundred dollars, and pay it to the first, or smallest debt on the list. It may take one, two, or six months to pay off that first debt but you will make it, if you keep up the momentum.
Step Three. Once that first payment is out of the way move on to the second debt, next to this debt you will have the remainder of the first debts minimum payment, the amount from your budget for debts, and the second debts minimum payment. That’s three payments that have; you guessed it, snowballed in to one payment.
This will make paying off the second debt much faster, as you have freed up cash to continue your path to a debt-free life. Imagine the momentum you will gather as you move down that list, and once you have finished what you can do with the snowball money that is left over from not paying any debts. Shoes, that don’t make you feel bad, savings for that rainy day, or the three to six month emergency fund you’ve always wished you had.
The key is to take your debt seriously, be aggressive with your debt management, and it will pay off in the long run.