how to reduce your debt with the snowball method - highest interest model

What is the best way to reduce debt? It's a question that everyone with debt asks at some point.
The most-efficient means of debt reduction is probably the snowball method. There are two main variations of the snowball method, but you must consider your personality to determine which of the two is right for you.

The Classic Snowball

The classic snowball debt reduction method works as follows:
Make a list of all your debts, ordering them from highest interest rate to lowest interest rate.
Set aside a specific amount of money that will go toward paying these debts each month.
From the amount you set aside, make the minimum payment on all debts. Whatever money is still left over goes toward the debt with the highest interest rate.

When you finish paying off the debt with the highest interest, continue the same method. You make the minimum payment on all debts, and all of the extra money goes toward paying down the debt with the now-highest interest. The payments made toward the first debt that was paid off get "snowballed" into the next-highest-interest-rate debt.

This is the most efficient way to pay off debt, as you will pay the least amount in interest changes by reducing debt this way. This is the reason most financial experts recommend this method.

The problem is that for many people, it's not necessarily the most practical way to approach debt reduction. This is due to the fact that people don't always use money in a rational manner but instead use money emotionally. If everyone viewed money in a purely rational way, there would be far fewer people in debt than there are today.

If your largest debt happens to be the one with the highest interest (which is common), you could end up feeling that paying off that amount of debt is hopeless since it's so huge and daunting. Many people begin the debt reduction process but after several months don't see any significant progress being made. If they don't feel as if they are accomplishing anything, they get frustrated and give up.

How to Reduce Debt using the Snowball Method - Lowest Balance

Since the main goal of debt reduction is not only to reduce debt in the quickest possible way but also to make sure that the debt is actually reduced, it's important to understand the way that you view money. If you view money emotionally, then a better way to reduce debt might be to focus on the debt with the least amount of money to be paid off. In such a case, you would approach the snowball method in this fashion:
Make a list of all your debts, ordering them from lowest balance to highest balance.
Set aside a specific amount of money that will go toward paying these debts each month.
From the amount you set aside, make the minimum payment on all debts. Whatever money is still left goes toward the debt with the lowest balance.
When you finish paying off the debt with the lowest balance, continue the same method. Make the minimum payment on all debts and then put all of the extra money toward paying down the debt with the now-lowest balance.
This version of the snowball debt reduction is not as efficient as the classic version. You will end up paying more money in interest charges using this method. What this method gives, however, is a sense of accomplishment much more quickly than the classic method oftentimes does.
If you view money emotionally, being able to pay off a debt quickly will give you an emotional and psychological lift and keep you motivated to tackle the remaining debts.

5 Steps to Reach Your Financial Goals

This blog is all about making money. So I figured that I should write an artilce about reaching your financial goals to help you create a roadmap for success.

You may have a general idea of what financial goals you’d like to achieve, but you haven’t taken the time to truly form a plan to achieve them. If you don’t know exactly what your financial goals are or how you’re going to attain them, it’s going to be quite difficult to achieve them. The obvious step is to form a plan to reach these goals.

Step 1. Identify your financial goals: Write them down. One example of a financial goal might be to eliminate credit card debt. Whatever your financial goals are, take a day to list them so you know exactly what you want to achieve financially in your life.

Step 2. Set parameters: If your financial goal is to eliminate credit card debt, your may define the time limit as “eliminate credit card debt in 3 years.” You also need to set a monetary goal. In this case it would be the amount you owed on your credit cards plus interest.

Step 3. Write a detailed plan: Create a step-by-step map of how you’re going to reach that goal. For your credit card debt, you can choose a snowball debt reduction method. that best fits your personality. Then you need to figure out how you are going to pay for that plan. Assuming that you have credit card debt of $5000 plus interest, you could shoot for a minimum of $5 a day to reach this goal. To reach the $5 a day monetary goal, you could eat out one less time per week, wash your clothes in cold instead of hot water or negotiate a better deal on one of the services you pay for.

Step 4. Remind Yourself: Place your goals above your computer, on the mirror in the bathroom or any other place you will see it a number of times each day.

Step 5. Review your progress: Thing happen and adjustments need to be made even to the best laid plane. You will want to review your progress on a weekly or monthly basis to make sure you are still heading toward your goal.

Bonus Step. Tell the world: Tell anyone and everyone your goal. Shout it out if you have to. The more peopel that know, the more likely you are to stick with it.

Reaching your financial goals is much like finding a specific place hundred miles away. If you start heading in the general direction, there is a chance that you’ll eventually reach where you want to go, but if you have a detailed map of how to get there, you’re much more likely to get there and in a lot less time. The more detailed the map, the better the chance of reaching your destination in the least amount of time. The same is true with a step by step “map” to your financial goals.