The Dave Ramsey’s Great Debt Snowball Effect and Repaying your Debt
Thursday, August 13th, 2009 Subscribe To Our Feed
The Debt Snowball Effect was ‘developed’ by Dave Ramsey. The normal logical steps to take to pay of credit card or any debt are to do the follow:
1.List your debt from highest interest rate to lowest interest rate.
2. Designate a certain amount of money to pay toward debts each month.
3. Pay the minimum payment on all debts except the one with the highest interest rate.
4. Throw every other penny you can find at the debt with the highest interest rate.
5.When that debt is repaid, do not change or alter the monthly amount used to pay debts, but throw all you can at the debt with the next-highest interest rate on your list.
But then Dave Ramsey came up with the following alternative:
1. Order your debts from lowest balance to highest balance.
2.Allocate money to pay your debt each month.
3.Pay the minimum payment on all your debts except the one with the smallest balance.
4.Throw every other penny you have at the debt with the lowest outstanding balance.
5.When that debt is repaid, do not change the monthly amount used to pay debts. Throw all the money you can at the debt with the next-lowest balance on your debt list.
The reason why you should do it the Dave Ramsey way is that psychologically it will give you a massive boost to know you have paid of one of your creditors. You can then cut up that card and close the account and one of your debts are gone.
The customer that is in debt counseling will have to pay all creditors evenly according to the proposal of the debt counsellors. The customer may make additional payments directly to creditors. So instead of paying off the highest interest accounts, the customer will make payments to creditor with the smallest outstanding balance. This simple strategy will keep the over indebt customer motivated and focus to pay off his debt faster.
If you are drowning in debt and cannot pay your creditors each month, you can should apply for debt counseling.
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