The Dave Ramsey’s Great Debt Snowball Effect and Debt Restructuring
Monday, August 17th, 2009 Subscribe To Our Feed
The Debt Snowball Effect was ‘developed’ by Dave Ramsey. The normal logical steps to take to pay of credit card or any debt are to do the follow:
1.List your debt from highest interest rate to lowest interest rate.
2.Allocate money to pay toward debts each month.
3.Pay the minimum payment on all your debt except the creditor with the highest interest rate.
4.Throw every penny at the debt with the highest interest rate on your list of creditors.
5. When that debt is gone, do not alter the monthly amount used to pay debts, but throw all the money you can at the debt with the next-highest interest rate.
But then Dave Ramsey came up with the following alternative:
1. Order your debts from lowest balance to highest balance.
2.Allocate a certain amount of money to pay toward debts each month.
3. Pay the minimum payment on all debts except the one with the lowest balance.
4. Throw every other penny at the debt with the lowest balance.
5.When that debt is repaid, do not change the monthly amount used to pay debts. Throw all the money you can at the debt with the next-lowest balance on your debt list.
The reason why you should do it the Dave Ramsey way is that psychologically it will give you a massive boost to know you have paid of one of your creditors. You can then cut up that card and close the account and one of your debts are no more.
The customer that is in debt counseling will have to pay all creditors evenly according to the proposal of the debt counsellors. The customer may make additional payments directly to creditors. So instead of paying off the account with the highest interest, the customer will make payments to creditor with the smallest outstanding balance. This tactic will keep the over indebt customer motivated and focus to pay off his debt of faster.
If you are drowning in debt and cannot pay your creditors each month, you can should apply for debt counseling.
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