The Debt Snowball Method Solution
If you do not want to go for credit counseling, you may want to try using the Debt Snowball Method to manage your finances. While getting out of debt with this method is not especially difficult to work with, it will take some time to accomplish. In addition, if you lose your job, or otherwise suffer a reduction in income, you may find yourself in worse condition than you started.
In order to use this method, you will need to make a list of all your debts, and arrange them from the smallest dollar amount to the largest. Next, you will set aside a certain amount of extra money to pay on your smallest debt. Once that is paid off, you will take your monthly payment plus the extra amount and apply it to the next debt on your list.
On the surface, this solution looks like good advice. Many financial advisers also claim that there is a psychological benefit to seeing the smallest debts paid off that will help you keep moving forward. On the other hand, it fails to address a number of problems.
In particular, chances are your mortgage and car are your two biggest debts. They are also the two most heartbreaking things to lose as a result of financial problems. While you have a steady income, it may make sense to pay as much into these debts as possible. At the very least, if you pay ahead, you can always coast a month or so until you regain your income.
Considering the current job market, it is likely this will prevent you from going into foreclosure. While paying down credit card debt will reduce your interest payments, it won't do much to help you save your home. As an example, if you do not cancel your credit cards as soon as you pay them off, it is likely you will wind up running up a debt on them all over again. As a result, you may even wind up making a new “debt snowball list”.
Many types of debt solution advice revolve around preventing the need for credit repair at all cost. Unfortunately, this can be carried to the absurd extreme, and create a situation that will make it impossible for you to protect your most valuable assets. When you factor in the current global economy and the soaring number of environmentally related illnesses, it would be prudent to factor income loss into your debt management strategies.
Among other things, you may want to send a letter to your creditors, asking if they have some type of debt insurance to offer you. As an example, many credit card companies offer this coverage for a fee. While it may cost a few dollars extra, at least if you get sick or lose your job, the credit card company will allow you to defer your debt for a certain amount of time.
Without a question, if you are certain that your cost of living and income will remain constant, the Debt Snowball Method is both feasible and manageable. On the other hand, today's economy may make it some of the worst advice you can take. Before committing yourself to this method, it is important to consider all of your options, as well as do what you can to cushion your finances in the event of an unforeseen financial disaster. |