How to clear debt? Treat it like rolling a snowball.

Photo by Emil Kalibradov on Unsplash

If you are anything like me, you probably have several credit cards, maybe a loan, car finance, a mortgage, etc.

Debts are so easy to mount up in these times of immediate gratification and pay for it later — but also in these times of mounting costs and needing to purchase essentials for our families.

Unfortunately, when you purchase anything on a credit card — unless you pay the total amount off the next month — you end up paying much more for the item. For example, if you spend £1000 on a credit card with an interest rate of 18% and make only the minimum payment each month, you will still owe £946 by the end of the first year because of the interest.

As Henry Wheeler Shaw once said, “debt is like any other trap, easy to get into, but hard enough to get out of.”

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Debt steals happiness and peace of mind; it can ruin relationships and break families apart.

Getting out of — or at least severely reducing — debt should be something that we all need to plan and strive for (as none of us can afford it)…but how?

I read an interesting idea somewhere in the dim and distant past that suggested the ‘snowball’ method of attacking your debts. I have told a few friends about this over the years, and they have used it to good effect.

The premise of it is that you look to see if there is any extra money that can be wrung from your life, no matter how small the amount — this could be done by selling some unwanted items, doing without treats, saving money on shopping by making meal plans and shopping in lower-priced supermarkets, cancelling TV entertainment packages; generally getting rid of any monthly outgoings that you can do without.

You then need to look at paying off your smallest debt. The reason that you start by paying off the smallest debt instead of the one that you are paying the most interest on is because, although the one with the higher interest is costing you more, the pleasure of paying off a debt will give you the momentum to keep going.

It’s like going on a diet; the progress of seeing the needle on the weighing scales go down spurs you on — whereas when you feel like you’re working hard and doing all the right things, but the needle doesn’t seem to be moving much at all— it can make you falter and stall the whole process.

So, you take your smallest debt and add the amount you have managed to save each month to the minimum payment — let’s say that you have a credit card and the minimum payment is £100. You managed to find an extra £25 per month, so you put them together and pay £125 per month.

You keep paying the £125 until that smallest debt is paid off, but then, instead of thinking, yippee, I have an extra £125 per month, you move on to your next smallest debt.

You pay the minimum payment on that PLUS the £125 from your now paid debt.

Once that card is paid, you take the two amounts combined and add them to the minimum payment of the next debt and so on.

The debts clear faster and faster without you paying out any more than when you first started — this is the snowball effect.

Photo by Clay Banks on Unsplash

I know how difficult finding any extra money from an already tight budget is, but the debt will cost you so much more over time, and even the smallest overpayment can make a massive difference to your time to freedom.

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