Alaska is a wonderful place to live and there are many ways to enjoy
Alaska's great outdoors. For some people that means owning ATVs a boat or even
horses.
This family has taken many years to accumulate the belongings of their
dreams.
However, for some people they try to do it all at once and end up with a lot of
debt to repay.
Hi I'm Linda Tannehill UAF Cooperative Extension Service. One way to repay debt
is with the snowball method. If you've ever built a snowman
you've experienced how starting with the snowball and rolling it in the snow
works best to build size faster.
Think about that concept as we explore the snowball method of debt repayment.
This method works for people who enjoy quicker gratification and get
satisfaction from seeing their debts eliminated one by one.
Let's look at how this works. First, figure out where you are financially.
List all your debts,
the percentage rate for the interest on the debts and the minimum payment.
Leave out debt such as a mortgage payment.
Also for this method to work it's important to quit charging on any of the
accounts.
Let's work through an example. In this scenario there is a total minimum
payment of a hundred and sixty-five dollars per month.
Comb through your financial obligations and see where you can come up with some
additional money each month.
Let's say you can reduce the number of times you eat out each week and reduce
your entertainment budget to come up with an additional one hundred dollars
each month. Now with the list
we need to figure out an order for our snowball. There are numerous ways to
repay debt, but with the debt snowball
we will list the debts from the least owed to the most owed. We will not be
looking at the percentage rate. We have now ordered these accounts based on the
debt with the least amount owed to the most amount
owed. Add this one hundred dollars to your minimum payment on the obligation
at the top of the list. In looking at this example, the extra money will be
paid on store card B. That makes a total of hundred and twenty dollars paid
monthly against this debt. Continue to pay the minimum on all the other debts
so you stay in good standing with the other creditors. With the extra paid on
store card B, you have paid off the debt owed in about seven months.
Here comes the magic, when this debt is paid off
you will roll the hundred and twenty dollars to add to the twenty dollar
minimum code on credit card B.
Remember you have been paying on credit card B at the minimum amount for seven
months.
Credit card B is the next to be paid off, with the additional money snowball
in about eight more months. In a little more than a year
you have paid off two of the debts. You are now ready to start on the last two.
Again,
you roll the hundred and forty dollars plus the twenty five dollar minimum on store
card A, which is the next debt on your list.
You are making real progress here. You are snowballing your debt until it
disappears.
Stay with the plan and all four of these debts will be paid off.
If you go back and think about paying only the minimum payment on each of these
debts
it would have taken you over 20 years to pay three of the four debts.
One of the debts would have never been paid off since the minimum didn't pay
the interest each month.
Let's look at debt repayment in another way.
Some people can't ignore the percentage rate and would prefer to pay off the
card with the highest percentage rate. Here is what this same example would
look like if someone decided to pay off their debt from highest percentage to
lowest percentage owed. The process is the same, only the order in which you pay
it off is changed.
Remember that sometimes during the year you might come across some unexpected
money. Your tax refund, permanent fund dividend, a raise at work or even a cash
gift.If these amounts are applied to your snowball
it will help you pay off your debts sooner. Utah State University Extension
has a website that can help you apply this method to your debts
here's the address. In summary list the amounts, the minimum amounts due and the
interest rate on each of your debts. Determine the order you want to pay them
off. Then comb through your budget to find additional money to be dedicated to
be paying off these debts.
Add this amount to the minimum payment on the first debt and snowball it until
it's gone.
Move the total payment to the next debt and continue until all debts are paid.
This is a snowball you're going to enjoy rolling.