Financial Planning

When you are in the thick of it, getting out of debt can seem impossible. Many people look at the balances on their credit cards, mortgage, car loans, and other debts and assume that it is impossible to escape. But, when you take a close look you can probably find a way to get out of debt in much the same way that you go into it.

The snowball method refers to paying off each individual debt one at a time so that eventually it snowballs into being free of all debt. If you are like most of us, getting in debt started out slow and snowballed into one big debt. If it worked to get you into trouble, it can also work to get you out of trouble.

The snowball method comes in two different forms that work under the same principle. First, you have to take all of your credit card bills and arrange them based on the balance or the interest rate. Some people think that you should pay off the high interest credit cards first, because they cost the most money. This is true, but since these debts may also be the largest it might take you a long time to see any tangible results. If you have a virgin credit card you may be able to make a balance transfer so your high interest debts get a reprieve, helping you pay them down faster.

Some of us need to feel debt relief faster, that is when the other option comes into play. If you want to see real movement quickly you might want to pay off the card with the lowest balance first, especially your cash back credit card in order to free up credit. Even though this might not save you the most amount of money it will give you the fastest results. Seeing fast results will help you stay motivated to continue making the sacrifices that are often necessary to get out of debt.

No matter which option you choose it is important that you keep track of all of your debts and balances. You must be very careful to continue making the minimum payments on all of your credit cards. Then, take any extra money that you have and pay extra on either the highest interest or lowest balance debt. As you pay off those bills keep the final statement that lists a zero balance as your reward for working so hard to clear your debt. Then, evaluate each bill again and start the process over working toward paying off one bill while maintaining the other bills.

You will have to make sacrifices to get out of debt. You will absolutely have to tighten your budget and stop spending on your credit cards completely. However, once you do that you will find that getting out of debt is not as painful or impossible as you once thought. You might get so pumped up about the challenge that you double your efforts and wind up reaching your debt free goal long before you anticipated.

You will have to decide what is going to give you the incentive to continue on your get out of debt plan. Do you need the quick satisfaction of paying off a bill right away or will you be more satisfied ridding yourself of a high balance first. There are no wrong answers, the key to debt relief is doing what you need to do to stay motivated and stay on track. If you can do that your debt snowball method will be successful, no matter which debts you pay off first.

Remember, once your debt is clear do not ever let yourself fall into deep debt again. Timothy Ng is a personal finance writer, and has a real passion for encouraging people to compare credit cards to ensure they get the best deal. Check out his comprehensive guide to 0 balance transfer 12 months where he provides an in-depth overview and analysis, to help you find a better balance transfer credit card deal.

Doing this correctly can save time and make a debt consolidation completely unnecessary.