DEBT SNOWBALL AKA (DEBT ROLL-UP)

The overview is you pay more a month than your monthly minimum. Let’s say your over all MINIMUM payment on all your debts is $700 dollars a month and you can find $100 or $200 extra dollars in your household budget to apply to your debt each month you will create a snowball effect in paying down your debt. Depending on how much extra money you can apply monthly to the debt will dictate how long it will take to pay off your debt.

If you pay just the minimum every month you are looking at a 20 year pay off term!!! However, if you apply the snowball method you are looking at an average of 2-5 year pay off period.

How it works:
You make a list of all your debts. Rank them by balance size and not interest rate. You start applying the extra money every month to the smallest balance. Once that balance is paid off you apply all the money from that debt to the next largest balance. This will create a snowball effect in paying off your debt. It is very important that you pay the minimum on all other debts to keep your accounts in good standing and not create more debt by paying late fees.

Pros:
Legally and ethically reduce your debts.
Does not destroy your credit
Helps you budget your money

Cons:
Takes time and discipline
Not quick and easy
Must create a budget
You must be really motivated!

We will address the other two methods of debt reduction soon:
DEBT CONSOLIDATION
DEBT SETTLEMENT or DEBT NEGOTIATION

I found this on MSN. It’s a cool litle tool to see where you stand in terms of your debt. On word of caution, beware of all the ads on msn.com for credit cards. Use the debt tool and get out. Best of luck!

Good debt versus Bad debt

Ok, I am very confused, when has it become good to be in debt? I must be missing something? Many financial gurus talk about bad debt; Credit Cards, and good debt Mortgage and school loans.

The theory is a mortgage is a good debt because you are borrowing money to purchase an “asset” that in theory will appreciate over time. Same with a school loan you are investing in yourself and in time your value will rise.

But the fact of the matter is there is no such thing as a good debt. I like to call it the necessary debt. Being in debt is not a good idea by definition (the state of owing something (especially money); “he is badly in debt”.

Most people can’t buy homes, cars and fund education with cash on hand. I understand that better than anyone. But simply because we need these things does not mean its good debt. And I would encourage everyone to pay their debts off as fast as possible, good or bad.

Crush your debt and live life debt free!

Controlling your debt.

You can take some very easy steps to start the process of getting your debt under control and improving your credit.

But let’s talk a little about what is good debt and bad debt. In my eyes there really isn’t such thing as good debt. Before you jump out of your seat and scream well a mortgage is a good debt… A mortgage is a necessary debt and the faster you can pay it off the better. Being in debt means you are not able to take that money and invest it in interest creating entities.

So with that lets look at a some bad debt and some necessary debt and some things you should not do.

Bad Debt:
1. Credit Cards. (Most cards have interest rates in the teens!)
2. Auto Loans
3. Personal loans
4. payday loans

Necessary debt:
1. Home loans
2. Borrowing for school

Things not to do:
1. Don’t let your spending get out of hand. Create a budget and live within your means. Hey if your grandparents did it so can you.
2. Don’t just pay the minimum on your cards. It will take you 30 plus years. It’s a credit card and not a mortgage. Go after that debt.
3. Do not go over your limit. You are just giving your Credit Card Company the authority to push your interest rate up. It’s in your terms of use. Which none of us read but really should.

Things to do:
1. Aggressively pay off your credit cards. There are two schools of thought on this one.
a. Pay off the highest interest rate cards fastest regardless of what is owed. Then take that money and apply it to the next highest interest rate card. Continue until you are debt free.

b. Pay off the card with the lowest balance first. Then take that money and apply it to the next biggest card. Continue until you are debt free.

2. Have an emergency fund. Believe me you will need it. It’s Murphy’s law when you can least afford something it will happen. The car dies; the roof is leaking, doctors bills, etc…. Folks it will happen. So be ready. I suggest at least a minimum of $1000 in the bank. Ideally you want six months of pay check in the bank. I know this is unrealistic for most people who are struggling to make just the minimum payment. So start the $1000 fund.

3. If you need help with your debt situation please face the music sooner than later. Your credit Score will thank you. Word of caution, be very wary of all the debt reduction and relief sites and programs out there. There are a lot of snakes in the grass so don’t get bit! I will write another article on what to look for and what to stay far away from.