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Debt has become commonplace in our society and for many a huge problem. We go deeper into debt without always understanding why. A reason for this is the selling of credit. Today's retailers make as much if not more money selling credit as they do from selling their products.
Let's take car dealerships as an example. Go to a used car dealership and see if they would like to talk bottom line price with you. I can ensure you that they will be much more interested in talking about payments than price free in five. The reason for this is they are selling credit.
Getting in to debt is so easy and really so convenient. The hard part, and it can be very hard indeed, is climbing back out. If getting out of debt is one of your goals, and it should be, you may be wondering how to do it and where to start. An effective method of debt reduction and eventual elimination is called the snowball effect and here's how it can work for you.
The first thing you need to do is to make a commitment that you're not going to fall further into debt. This is a very necessary step. If the commitment is not there the subsequent steps will likely not work. One very simple truth is that you can never borrow your way out of debt,yet many try to do just that.
Second, once you've taken that all important first step you need to set some money aside in what we'll call your emergency fund. Put money into a savings account. Three months of income would be a good goal but you may have to settle for a bit less at first. This is money you use for emergencies only and is there for your use as opposed to going into debt to pay for an emergency. It's really a type of insurance against incurring further debt.
With the commitment made and an emergency fund in place you can now begin the third step, debt reduction, and get your snowball started. A good strategy is to take all of your debt balances and attack the lowest balance first. This may be a retailer's card or a credit card with a low balance. Pay these off while paying monthly minimums on the remaining debts, other credit cards, car payments and mortgage.
When a smaller debt balances is paid off you take the amount you have been paying monthly and apply it to the next smaller debt. Now you're paying the minimum payment plus the amount you've paid on the previous debt plus anything more you can afford. Soon this debt will also be paid and you apply the same process to the next smallest debt. This is the snowball effect. Soon you're making meaningful debt reduction payments on your largest debts, probably your home mortgage.
You will continue to do this until you methodically eliminate all of your debt. The reason we take the smallest first is that we want to gain momentum. This simple process is 90% behavior, which means it will only work if you learn to control your spending habits. Good Luck!
Let's take car dealerships as an example. Go to a used car dealership and see if they would like to talk bottom line price with you. I can ensure you that they will be much more interested in talking about payments than price free in five. The reason for this is they are selling credit.
Getting in to debt is so easy and really so convenient. The hard part, and it can be very hard indeed, is climbing back out. If getting out of debt is one of your goals, and it should be, you may be wondering how to do it and where to start. An effective method of debt reduction and eventual elimination is called the snowball effect and here's how it can work for you.
The first thing you need to do is to make a commitment that you're not going to fall further into debt. This is a very necessary step. If the commitment is not there the subsequent steps will likely not work. One very simple truth is that you can never borrow your way out of debt,yet many try to do just that.
Second, once you've taken that all important first step you need to set some money aside in what we'll call your emergency fund. Put money into a savings account. Three months of income would be a good goal but you may have to settle for a bit less at first. This is money you use for emergencies only and is there for your use as opposed to going into debt to pay for an emergency. It's really a type of insurance against incurring further debt.
With the commitment made and an emergency fund in place you can now begin the third step, debt reduction, and get your snowball started. A good strategy is to take all of your debt balances and attack the lowest balance first. This may be a retailer's card or a credit card with a low balance. Pay these off while paying monthly minimums on the remaining debts, other credit cards, car payments and mortgage.
When a smaller debt balances is paid off you take the amount you have been paying monthly and apply it to the next smaller debt. Now you're paying the minimum payment plus the amount you've paid on the previous debt plus anything more you can afford. Soon this debt will also be paid and you apply the same process to the next smallest debt. This is the snowball effect. Soon you're making meaningful debt reduction payments on your largest debts, probably your home mortgage.
You will continue to do this until you methodically eliminate all of your debt. The reason we take the smallest first is that we want to gain momentum. This simple process is 90% behavior, which means it will only work if you learn to control your spending habits. Good Luck!
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