How to Get Out of Debt - Is A Debt Snowball the Right Choice?
There are almost as many methods of reducing debt as there are of losing weight. Every expert likely has their own set of techniques that they think work the best for the vast majority of individuals. While it is true that every debt reduction plan involves spending less money and focusing on paying down the debt that are owed, that does not mean that every plan follows the exact same path. Nowhere is this truer than when it comes to credit cards. Depending on who an individual talks to, they are likely to find a number of different recommendations when it comes to eliminating credit card debt.
Many experts recommend that an individual concentrate on the credit cards with the highest interest rate. Mathematically, this makes the most sense because high interest rates mean more debt and the sooner that an individual is able to eliminate high interest cards, the sooner they will find themselves out of debt altogether. A person with several cards, or several different creditors that they need to pay off, may also be encouraged to transfer the balances from one card or loan to one with a lower interest rate so that they can save money while they pay off their debts.
While there is nothing wrong with shuffling money from one account to another in order to take advantage of a lower interest rate, this process can often be confusing and is not provided person with the kind of immediate gratification that they would get if they concentrated on their smaller debts while slowly working their way up to the larger ones. This particular method, going from smallest to largest, is known as the debt snowball. While it may take a person a bit longer if they spend the same amount of money following the debt snowball approach as they would using another method, it may be the right choice.
The reason that the debt snowball approach has proven so successful for many individuals is that as they watch their smaller debts disappear, they are often spurred on to further action, focusing their attention on their other existing debts. When a person simply shuffled their debt from one part of the next in order to take advantage of low rates, their overall amount of debt may go down but the number of creditors that they have may not. Concentrating on smaller debts and eliminating them altogether, actually reduces the number of creditors.