Snowballing your debt payments is done by making your payments, as usual, until one of your debts is paid off, and then
taking the newly available money that is no longer going to that debt and using it to pay off the next debt on your list. Once the amounts from your first and second debts to the third debt on your list. Keep going in this manner until all your debts are paid off. Once your first debt is paid off, you will be amazed at how quickly the rest of your debtload lowers. You will see your debts paid off in record time.
A consolidation loan may be able to help you if you are still able to make payments and your credit rating is in relatively good standing. A consolidation loan is used to pay off all or a portion of your existing debts. Then you will only need to make one monthly payment on the consolidation loan, which is often less than what you were paying before.
With consolidation loans you need to be careful about what you do with the money you just freed up each month. Since the payment on a consolidation loan is often lower than your previous combined debt payments, you will likely have more money available to you.
Financial institutions and banks know that, statistically, if they are able to free up money for someone, usually that person will end up aquiring new debts with this freed income.
If you think about it, what would most people do with, say, $400 extra a month? Often, they will use it to get another loan for a new car, boat, or something else they would love to have. And who usually provides that new loan? Yup, the same bank that did the consolidation loan!
Unless you need that additional money to pay for basic neccesities, it would be wise to do one of two things with it:
- Start a savings plan the money will go into. That savings can be used as an emergency fund so you have money available when you need it. This emergency fund will prevent you from having to use debt to deal with financial emergencies.
- Take that money and use it to make extra payments on your new consolidation loan. This will help you get out of debt even faster,and it isn’t costing you any additional money out of your pocket.
Getting out of debt is the next step in building your financial house. Paying off debt is similar to adding the guts of your house such as heating, plumbing, and electrical lines. This step allows you to live in relative comfort and ease.
Debts can cost you a lot of money in interest payments and they hamper your ability to live life to the fullest. Once you are debtfree you will have freed up all that money that was going toward your monthly payments. You can look forward to doing more things or you can start putting money away to move you toward other financial goals such as buying a new home, taking a trip, or building up a healthy retirement account.
If you do not change anything and continue to make minimum monthly payments on your debts, you will eventually get them paid off. This assumes that you do not accumulate any new debts along the way. However, there are more efficient ways of getting out of debt that will not cost you any extra money.