The ‘debt snowball’ method has been touted by several financial experts, including Dave Ramsey, as an effective way of relieving debt burdens. Again, not every consumer will have the right situation for the debt snowball method but some may find it a great starting place for effectively paying off debts in full.

Overview of the Snowball Method
The reason the term ‘debt snowball’ is applied to this technique is because like a snowball, your debt repayments start out small but as you roll along in debt elminiation your payments will grow bigger and bigger until all debts have been paid off. In theory, snowballs gain momentum and size as they roll down a hill.

Here is the path your debt snowball will travel:

Choose Your Debts
The only way to make the debt snowball technique work is to be in touch with what your debt situation looks like by creating a complete list of all your debts. Include your creditors, debt balance, interest rates, and monthly payment requirements.

Setting Priorities
One question that comes into play initially is who to pay first. Some people prefer knocking out the smallest debts first while others will work on the debts with the biggest balances first. Whichever start you choose, consider the interest rates and the time it will take for debt payoff as well as any credit score damage.

Building the Snowball
The snowball will begin with your choice of one priority debt. You’ll begin the process by a large amount of cash toward the priority debt, usually the smallest one, while continuing to pay just the minimum amount on the rest of your monthly debts to keep your credit history stable. You must budget to figure out how much ‘extra’ you can afford to put towards your debts while still maintaining minimum payments for the other financial obligations you have.

Traveling the Path
The monthly amount you come up with to pay towards your priority debt becomes an important figure. You will continue to pay this amount on the priority debt. When that debt has been paid off, you will then add that payment to the payment of the next debt. In effect, this will give you a boost a self-esteem as you effectively start eating away at your debt.

For example: if you pay $250 towards Credit Card 1 until it is paid off, you will then pay $250 plus the minimum amount, say $50, you have been paying on Credit Card 2 until that is paid off. For Credit Card 3 you will pay the $50 minimum + $250 + $50 each month until paid off.

By the time Credit Card 4 is up for payment priority, you will have $400 to put towards that bill following the above sample without having to pay any more than you originally budgeted towards debt relief.

Staying Commited
The hardest part of the debt snowball method is getting started for most people but once you get used to paying that same amount each month in a more effective manner, it certainly can get easier – especially in the end where you end up with a lot of money to dedicate to your other debts.

If you have chosen to pay off the highest debt first, you may struggle through the time it takes to eliminate the debt. But once that is accomplished, the smaller debts will get paid off faster since you will be allocating more money towards the later debts.

Staying committed is the key factor in any debt relief plan. You have to have the dedication to stay focused and keep your money moving towards paying off debt. You can also extend your plan into the future as more motivation by agreeing to put into savings the total amount you have been putting towards your debt payments. Since you are used to the concept of spending that money each month anyway, you have likely learned to live without it. You will build up an excellent nest egg by committing that cash to savings at the same time you continue to learn to live below your means.

Snowball Your Way to Debt Freedom
If the situation is suitable for your debts and finances, the debt snowball can be an ideal way to eliminate debts in a fast, effective manner. Because consumers often see the results of their efforts rather quickly, they may be more motivated to keep moving forward on the debt snowball plan.

Evaluate many options for debt relief compared to the process of the debt snowball and make a careful decision about which tactic you should employ to knock down debts and avoid them in the future.

Ed O’Brien is a credit repair enthusiast that takes pride helping people get their financial lives on track. You can find more of his articles located on CreditRepair.org.

Why Repair Means Everything
When you are working on repairing your finances, you need to follow a certain type of order and have discipline to ensure you reach your goals. It’s good to pay off your debts and stop spending but in order to have total financial freedom there are other areas of personal finance that needs attention.

Repairing your credit should be the ultimate goal you set for yourself. Filter all other activities under that goal and you’ll be well on your way to financial stability. As you achieve better credit, you will also be working through the other steps that need attention and will bring your money matters back on the right track.

Taking the First Step
Credit repair involves a lot of different elements. As you work through each of these individual tasks, you will come out in the other side both debt-free and more financially independent than you likely have ever been.

Here are the steps of repairing your credit and your overall financial outlook:

Order Your Credit History/Score
You need to know where you stand credit-wise before making a move. Order your credit reports from the three major credit-reporting agencies TransUnion, Equifax, and Experian. All consumers have a right to a free annual copy of their credit report or at any time they have been denied credit approval for a period of up to 60 days. Credit scores are never free but for a nominal fee you can access each of your credit scores from the reporting agencies. You do not need to join any memberships in order to get a free credit report so don’t waste your money on the various scam-like promotions.

Evaluate Your Debts
You may think you know who your creditors are and how much you owe but you need to review your credit reports for accuracy and information. Your credit report will show you exactly who your creditors are, where they can be contacted, how long your account has been open, and what your outstanding balance is currently. Sit down with your reports when you have time and review all of your information. Dispute with the credit agencies all of the erroneous information contained on your credit report. The agencies have 30 days to investigate your claim and make changes to your reports. Incorrect information must be removed from your report which can improve your credit score.

Plan Your Debt Attack
Once you know who you owe, you need to construct a plan for paying off your debts in full. This plan should involve setting up a budget for your current expenses if you do not already have one in place. From that budget you should be able to see how much ‘leftover’ money you have to use towards debts. If the amount is insufficient, you’ll either need to cut existing expenses or earn additional income. Configure a plan for eliminating your debts in some kind of order such as the smallest to the largest balance or the highest to the lowest interest rate. Make your plan of attack and stick to it.

Keep Up With Regular Expenses
When you are working to pay off old, outstanding debts, it is just as important you keep a focus on the monthly bills you are also obligated to pay. Missing just one regular monthly payment can drop your credit score and potentially jack up interest rates on your account. That means you’ll have worsening credit and have to pay more money each month. Timely bill payments are a large factor in your overall credit score.

Refocus Your Finances
Once your debts are being eliminated and you find you have more stability in your finances, start figuring out ways you want to use your money for a better future. Saving and investing your money is the only way to ensure a stable present and a healthy retirement. Learn new ways of more effectively managing your money.

Live Within Your Means
The primary lesson every consumer needs to learn is how to live within their means. Overspending and poor management of money is the root cause of debt and bad credit. Learning to live with what you have and stop spending what you can’t afford is necessary for stability in financial matters. Learning your lesson will help you prevent history repeating itself. As you move forward into your next financial phase, one that may require financing or new lines of credit, your improved credit score and better focus on personal finance will ensure you save more money and have plenty more options available to you.

Repairing credit is not difficult but it does take time and some patience to see you through to your goals. Contrary to promotions from some agencies, there is no overnight fix for bad credit. Only hard work and dedication to having better credit and being debt free will turn your personal financial life around.

Ed O’Brien is a seasoned writer in personal finance, specializing in credit repair. You can find more of his articles located at CreditRepair.org.

What is debt consolidation?

Debt consolidation is a debt relief program. This process involves the following steps:

Firstly, you would need to approach the financial institutions for a consolidation loan.

Secondly, you would need to negotiate with the lenders over the terms and conditions (for instance, a low interest rate) of the loan.

Thirdly, if the lender approves the loan, then pay off all your debts with this loan.

You may not find it easy to consolidate debts yourself. In such a situation, you can consider hiring professional help.

What are the advantages of debt consolidation?

Many debtors struggle to make multiple payments every month. With debt consolidation, they can make a single monthly payment. This would help them to organize their finances and save more money. Also, the “single monthly payment” arrangement reduces the stress on their life.

Consolidation loans are usually stretched over a long period of time (20-30 years). Therefore, you will have the advantage of low monthly payments.

Most consolidation loans are secured loans. This means that the loan is backed by collateral and the lender can recover his money if you fail to repay. Since the risk involved is less, the interest rate is significantly low. So you can save on interest.

Does debt consolidation hurt your credit score?

A lot of debtors are rather confused about the effect of debt consolidation on their credit score. Actually, debt consolidation does not cause any major damage to your credit.

While consolidating your debts, you are defaulting on the original payment plan. This would have some negative impact on your credit score. Nonetheless, debt consolidation does not ruin your credit like debt settlement or bankruptcy. This is because it is not a debt reduction program.

You can easily repair the blemishes caused by debt consolidation, if you make timely payments for a few years. You can also request your creditors to remove minor negative remarks from your credit report.

Remember that debt consolidation will eliminate only your unsecured debt. If you have secured debts then consider other debt relief options like bankruptcy.

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* Can you go to jail for not paying your debts?

* How to settle your debts on your own

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* Sample Debt Validation Letter