Debt Snowball – The Accelerated Debt Payoff Method

The first time you hear “debt snowball,” you’re likely to wonder: What is it? I will tell you…

Did you ever see How the Grinch Stole Christmas — the classic cartoon version? And do you remember how the little dog-reindeer got stuck in a snowball that careened down the hill and got bigger as it went along?

That’s the same idea behind a debt snowball. The more balances you pay off completely, the more money you’ll have available to pay off each successive balance.

Debt Snowball Explained

Let’s say that you have five different balances that you want to pay off. Naturally, each balance is being charged a different interest rate. And you will owe a different amount of money on each balance.

Here’s what you should not do:

If you have $100 extra to put toward your debt each month, you should not divide the money equally and pay down each of your five balances by $20 each.

This may feel good because each balance is decreasing — but it’s definitely not the most effective way of paying off your debt.

But which balance do you attack first? That’s the question.

How to Decide Which Debt to Pay Off First

Usually, you will want to pay off the smallest balance with the highest interest rate. If your smallest balance does indeed have the highest interest rate, it’s a no-brainer. You pay off that balance first.

Then, after it’s paid off, you take what you HAD been paying toward that debt — add it to your debt snowball — and start throwing it at the next balance in line. Here’s a brief example:

Watch Your Debt Snowball Grow!

Extra Money to Pay Off Debt = $100

Debt #1: Minimum Payment = $50

Debt #2: Minimum Payment = $125

In this short example, you pay $150 toward Debt #1 until it is paid off. You then take this amount and add it to the minimum payment of Debt #2. So $150 + $125 = $275.

You now have $275 per month to put toward Debt #2. As you can imagine, you will pay off this debt even faster than you paid off your first balance because your debt snowball is now much bigger.

Imagine how big it will be by the time you get to the fifth and final balance!

Debt Snowball: Better than Consolidation?

Some will tell you that it’s actually more effective and less expensive to use the debt snowball method to pay off your debts.

This is because consolidating debt often has some costs associated with it: balance transfer fees, management company fees, etc.

If you can manage your own finances, and start your own debt snowball program, you may be able to reduce your debt — and ultimately become debt free — faster than you might imagine.

So what’s next?

You might consider searching Google for a debt snowball calculator. There are some free calculators out there that can help you figure out what order in which to pay off your debts.

Christian Debt Reduction – How to Find Peace from Debt

For believers, Christian debt reduction is a big decision. You desperately want to get rid of debt and finally have peace in your life again. You know you need help, but you don’t want to hire just anybody. You want to hire a believer like you.

So where do you start?

First, it helps to understand the process you will likely go through. There are two options for Christian debt reduction: there’s debt consolidation and there’s debt settlement.

When you still have some breathing room, it’s more likely that you’ll try to consolidate debt, lowering interest rates and minimum payments in the process.

But when you’ve racked up so much debt that you can’t even make your minimum payments anymore, it’s likely that you’ll put together a plan for debt settlement.

Christian Debt Reduction through Settlement

Debt settlement is a process where you stop paying your creditors and save the money you would normally pay them. When you have a certain amount saved up, you then approach your creditors to try to get them to settle with you.

Basically, when you settle, your creditor is agreeing to accept a certain amount of money less than what you owe. Sometimes this can be less than 50% of what you owe.

By accepting your payment, your creditor agrees to write off the rest of your balance.

While some individuals attempt to manage this process themselves, it is strongly advisable to hire a Christian financial organization that is experienced with these kinds of situations. They will be able to manage the process for you and make sure everything is happening according to your plan.

Pay Off Your Debts Faster and Find Peace Again

Unfortunately, when you have crushing debts that you can’t seem to pay off, it can affect you physically, emotionally, and spiritually. Many people have trouble sleeping, get angry, and distance themselves from God.

One of the reasons Christian debt reduction organizations exist is to help believers find peace and draw close to God again. Many times, this can only happen once a certain level of financial stability is achieved.

Did you know that God actually made provisions in His law for people who fall into debt?

Every seventh year was a rest year where you could actually take a break from repaying your debts. Every 49 years God commanded that a Jubilee be kept. During the Jubilee, all debts were forgiven!

Of course, there’s not a country in the entire world that acknowledges or follows this Biblical precept. But wouldn’t a Jubilee be awesome? :-)

Let Christian Debt Experts Help You

Thankfully, there are many believers who sincerely care about how debt is affecting Christians. And they are committed to helping Christians become debt free.

One such organization that I’m aware of is Trinity Financial Mission. It is a non-profit company dedicated to helping Christians find relief from debt.

This is the same company that my brother and his wife are using. They are currently following a debt settlement plan. My brother told me they got their first debt settlement offer from Citi the other day. Woohoo!

It was hard for my brother to admit that he had accumulated more debt than he could handle. It was hard for him to admit that he needed help. It’s hard for anybody, Christian or not.

But if you have reached a point where you recognize the severity of your debt problem, then I strongly recommend getting Christian debt reduction help. Often it’s just a matter of filling out simple web form or picking up the phone and making a call.

Car Debts – Driving Away from Debt

Car debts often eclipse a person’s credit card balances by a long shot. It’s not uncommon to have $30,000 up to $60,000 or more in car debts.

Worse, monthly payments can exceed $1,000 a month — almost as much as a small rent or mortgage payment! This can put a huge strain on your ability to meet all your monthly obligations.

Obviously, if you can reduce your car payments or get rid of them altogether, then it will be better for you financially.

Pay Just a Little Bit Extra

One way to get rid of your car debts is to pay off your loans earlier than expected. It’s actually not that hard to do. Simply pay an extra $10 or $20 a month.

You won’t miss such a small amount of money, but your loan balance will step down faster. You may be able to shave off a few months of payments over the life of the loan.

Downsize Your Car

Probably one of the fastest ways to make your car debts go “poof!” is also the most difficult emotionally. That is to downsize your driving lifestyle.

Instead of driving a new Acura, sell it and get a used Honda. Instead of driving a new Lexus, sell it and get a used Toyota. Instead of driving a new Cadillac Escalade, sell it and get a used Toyota 4Runner.

You get the idea.

By selling one of your vehicles, you can instantly wipe out thousands of dollars in debt, maybe even tens of thousands of dollars. Then, when you purchase a used vehicle as a replacement, your car loan may only be one-fifth or one-third of the old loan amount.

This will not only reduce your debt, but reduce your monthly payments as well — both really positive things if you’re trying to become debt free.

Become a One-Car Family

For most of my 10 years of marriage, my wife and I (and kids!) have shared one car. This is not always possible, but we’ve been able to make it work during different periods of time.

If you have two car loans on two different cars… and you sell one car… you may erase half of your car debts in one fell swoop!

And I can tell you from personal experience that it’s WAY easier to take care of one car compared to two. It’s half the oil changes, half the repairs, etc.

Live Closer to Work

By living closer to work, you may not reduce your car debts, but you will save money on gas, insurance, maintenance, and repairs.

If you live close enough, you may even be able to ride a bike or walk to work. Or carpool.

Some brave individuals have moved closer to work and gotten rid of their cars for good. They use only human-powered and public modes of transportation. And it can work well for certain people.

Others who live in warmer climates may want to trade in their car for an inexpensive motorcycle or motor scooter. Again, this is not for everybody, but it works well for some.

Car Debts Be Gone!

No matter what angle you take, you can quickly get in a better financial situation by eliminating or reducing car debts. Thankfully, once you get over the emotional resistance you may have, it’s actually easy to do.

Here are the four strategies: Pay off your loan faster, downsize your car, become a one-car family, and/or live closer to work. Choose the approach that works best for you.