Tackle that Debt! (”Snowball” Method)
We recently covered some ground on building an emergency fund and keeping it above the average inflation rate. Today, we’ll start looking at what you will need to do before moving in the right direction financially at this point in the process. Before we go into the second step I’d like to mention a few things. In the past few months, most Americans, have suffered tremendously with their personal finances. Many have lost their homes due to foreclosures and an even greater number of people have lost their employment. Most recently, I read an article regarding to the employment numbers for the month of June. Things aren’t exactly looking very peachy at the moment but I guarantee that there is more than one reason for why tackling your debt in this fashion, may benefit you greatly.
The “snowball” effect on tackling debt can work wonders for both your psyche and your personal finances. Essentially, you will be takling the smallest of your debt obligations and moving up to the biggest debt. You will need to make minimum payments on all other debts inorder to get to smaller ones paid off more quickly. On a side note, I’m not sure but I think this looks great on your credit ;D. Once you slowly start takling your debt this way, you’ll start to see that you can consistently move through your debt because you get pumped every single time you pay the smaller debt off. Like I said, this method of takling your debt does wonders for your pysche and it’s easy to understand why.
At first, the math doesn’t exactly make sense because the finance charges on the larger debt keeps adding up. Before you know it though, you’ll be making the previous payments you were making before on your larger debt amounts and getting out of them at a quicker pace than you would have otherwise done so. In the end not only do you feel great for having done this, but you’ll actually be saving some moolah as well!
Now that the logistics are out of the way, let me remind you that you MUST NOT go past this step without first having completed the previous steps. You’ll need to get out of debt before you can advance to the next phase of your financial freedom plan. There is no way around this and there are no short cuts either! Get this done and stick to it!
In the next step of the process we will be talking about what you should start to do once you are out of debt. For many, reaching this point will be difficult, but I will have you know that it is not impossible and you can get here! Do not give up and continue through these steps. Financial freedom is within your grasp!
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