Would you like a UK debt specialist from Finance Inc to call you by telephone
and provide instant debt advice for FREE
Click Here

Snowballing Debt Problems

On the whole, debt problems from credit cards is huge. Many people have effectively controlled and managed this debt by using a method called snowballing. It is a way in which the user can prioritize debts, and then pay them according to an order of priority.

Let’s suppose the debtor uses a number of credit cards. Snowballing debt problems work like this: determine one of the cards to be the one with highest priority. All available funds are used to pay off the priority card, while only minimum payments are made on all the other credit cards. This will continue until the priority card has been paid in full. Then, another card will be chosen as the priority card, and the process repeats.

The basics of snowballing are outlined below:

1. Make a list of all the debts in ascending order, i.e. from the one with the smallest balance to largest balance.
   
2. Be determined to pay the minimum payment on all debts, small or large.
   
3. Try to calculate how much extra can be applied to start paying off the smallest debt. This is the priority debt.
   
4. Start paying off the priority debt, i.e. pay the minimum amount, plus the extra amount until it has been completely paid off.
   
5. Once the smallest has been paid off, choose another priority debt, i.e. the second smallest debt. Add the old minimum amount from the first debt to the extra amount. This sum is the amount to start paying off for the next priority debt.
   
6. Repeat until all the debts have been paid off.
   

Other than the basics, there are two other methods to prioritize debt:

1. APR Method: In this method, debt is prioritized according to the rate of interest. The higher the interest, the higher its priority. This may seem like the easiest and quickest way of eliminating debt, however, the debt with the largest interest is usually the largest in amount. Therefore, if this is chosen, then it may take a long time to pay off this debt. The other debts would still be accumulating interest as time passes. This method is best used when the debt with largest interest is not much different in amount than other debts.
   
2. The Outstanding Balance Method: This method determines debt priorities according to how fast each can be paid off in full. The smaller the debt, the more quickly it will be paid off, hence it is essentially the basic method of snowballing. It gives a motivational boost to the debtor!

In practice, both techniques perform in the same way. With a lot of small cards and balances, the outstanding balance technique may prove to be more suitable; however, the APR technique mostly works out as the quickest and cheapest technique in the long run.

Of course, the key to make snowballing debt problems work is to use your credit card at its bare minimum. Only when you stop generating expenses will the debt management and reduction schemes work. Throw out credit cards, hide them, do whatever it takes to keep you from getting back and further into debt. Sure, it might take some penny-pinching living, but that is the undisclosed secret of prosperity.

For personal advice on your debt position, please call 0845 2267 153 or use anyone of the many contact options available through this web site, Finance Inc are happy to offer you free advice in circumstances were you find yourself in debt and in many cases can offer you the correct debt management solution for you situation.

For a complete debt management solution, visit www.finance-inc.co.uk

For IVA (Individual Voluntary Arrangement) visit www.1va.co.uk