The Dave Ramsey’s Great Debt Snowball Effect and Repaying your Debt

The Debt Snowball Effect was ‘created’ by Dave Ramsey. The normal logical step to take to pay of credit card debt is to do the follow:

1.Order your debts from highest to lowest interest rate.
2.Allocate money to pay your debt each month.
3.    Pay the minimum payment on all debts except the one with the highest interest rate.
4.    Throw every other penny you can find at the debt with the highest interest rate.
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.Rank your debt to creditors from lowest balance to highest balance.
2.Allocate 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.

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.

When a customer is in debt counseling, he pays all creditors evenly according to that the debt counsellors set out for him to pay. The customer may make additional payments directly to creditors. So instead of paying off the highest interest accounts, the customer will make payments to creditor with the smallest outstanding balance. This simple strategy will keep the over indebt customer motivated and focus to pay off his debt 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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