How to Use the Snowball Method to Achieve a Debt Free Life

Debt relief options vary and your choice will depend on your financial capabilities. As effective as they all are, you need to understand that most of them are suited for people who are in a real financial crisis. There are consequences to your credit score and if you do not want that on your record, then you may want to look at alternatives.

The best way to pay off your debts without damaging your credit history is simple - pay them off the right way. This means paying all your outstanding balances - without negotiating for a lower monthly payment or getting aid to do so. There are alternatives that will get you to depend on your own capabilities and self discipline. You can hire a credit counselor or debt/financial adviser to help get you started but with the right amount of determination you should be able to do this on your own.

There is a type of payment scheme that will get you to pay off your debts by paying slightly higher than the minimum requirement. The whole concept of this is to take care of the minimum while paying slightly more for selected debts. The time you will spend on this type of debt payment plan will depend on your financial capabilities.

To be more specific, this is called a snowball method. It involves selecting the low balance debts and putting in the extra money on that account.

Begin by looking at your finances and analyzing your income, expenses and debt. Get the difference between your income and expenses. That is the amount is known as the disposable income. If your income is $4,000 and your expenses amount to $3,000, your disposable income is $1,000. This means you can afford to pay $1,000 to your debts without compromising your current lifestyle.

After that, get a list of all your debts and list them according to priority. With the snowball method, your focus should begin with the debt that has the smallest outstanding balance. List them all down from least to greatest balance. Note all the minimum payments and get its total. As an example, let us assume that you have the following debts:

Debt 1: $2,000 (balance), $200 (minimum)
Debt 2: $3,000 (balance), $300 (minimum)
Debt 3: $4,500 (balance), $350 (minimum)

Your total minimum payment requirement is $850. Compare the disposable income to this total. If the income is greater than the total minimum payments, you can put all the extra amount on the first debt on your list. That means Debt 1 will receive $350. Assuming that you will no longer acquire more debts, you should finish paying off Debt 1 in approximately 6 months.

When you finish that debt, get the amount intended for the first debt and put that in the second one while continually paying for the minimum on the other debts. That means you will put $650 on your Debt 2 payments. As you finish the second debt, move on to the third and continue until you have finished paying off all your debts.

Of course, this is only possible if you have a higher disposable income than your minimum payments. If not, then you need to increase that by either growing your income or decreasing what you spend on every month. You can also look for other debt relief options.

There are various ways to be debt free and each choice is best suited for a particular type of financial situation. If you wish to know other options apart from the snowball method, all you need to do is to research on it and analyze your financial capabilities.