As children and adults, making a snowman is usually a typical winter activity. However, I bet you didn't know it's a good analogy for how to tackle your debt too. Many of us try to pay off our largest debts, but often that means our smaller debts end up getting left behind to become larger over time. But what if I told you the best way to get out of debt is to start with a snowball?
The Snowball Plan
Not a very well-known method, Dave Ramsey's Snowball Plan for getting out of debt actually makes a lot of sense. Look at it this way; right now the way you pay your debt, you put the most focus on your larger debts, correct? The small amounts you owe are often put on the back burner until they become a larger issue. However, the Snowball method says that's completely backwards!
You're probably scratching your head at this point, so let me explain how this works. Once you have these steps down, you'll be able to build a large cash flow to tackle all of your debts quicker than you may have before.
- First, make an emergency fund.
You may feel this is out of place, but think about it. How often do your bills get pushed to the side because something comes up that you have to pay for; like say car repairs or doctor visits? By having an emergency fund, you can keep your bill payments on schedule because you won't need to dip into your other income.
- List your debts from smallest to largest.
Focus all your energy into paying off the lowest debt first. This may sound backwards, but keep reading.
- Build Momentum.
Every time you pay off a debt, take the amount you were paying and add it to the next largest debt. By doing this with every debt you'll be able to make larger payments each time a debt is paid off.
By following this method of paying off your smallest debt and applying that extra money to the next bill, you'll be creating a snowball that becomes larger with each debt paid off. So on your larger debts, say your mortgage or auto loan, you'll be able to make large payments and on time meaning you'll be debt free sooner!
You Don't Need to Wait
This is a plan you can start today. However, we know that some things like a newer car can't wait until your debt-free. That's why we created our easy to use online application for people just like you who may have damaged credit and need to buy a car. We'll find the dealers for you in your area that will gladly work with you to purchase a reliable and affordable vehicle. You can apply today and be driving tomorrow!