Snowballing Effect

Another month as past and my wife and I have figured our net worth to be approx. -$26,000. This is a vast improvement. We have gain $2,000 of net worth in on month. It is even more impressive when you consider that my wife and I make less than 2,700 in a month. That translates to the fact that we have bought food, paid for gas, utilities, and rent, and paid down debt or saved money. It excites me because if proves that our investments and 401k’s are really working for us. Helping us increase our net worth, and making us money that we don’t even have to work for. For clarification, this is not my overall debt. It is much higher. This, the $26,000, is what I would still owe if I were to sell all my assets. This may seem really scary, and in fact it is, but you should keep in mind that more than 60% of all our debt is due to student loans.

I would like to share with you a “secret” that perhaps the lenders use to entice and trap you, and how I’m using this to my benefit to get out of debt and beat them at their own game. I hope you are as frustrated as I am with all the advertisement from any financial business (I’m carefully not to use the term institution, by financial business I mean any entity that exchanges money to make money. i.e. banks loan center, ect.) and all their advertisements about getting some type of loan or another, to pay for or refinance another loan you may have. This is a very good thing and can in fact save you a lot of money. IF IF IF you only borrow what you need to pay of the original loan. That’s the bait they dangle, but when you go in they convince you take out even more money because you getting such a better rate and can “do something fun” with that money. This is what is commonly referred to as snowballing debt. Many of you may be familiar with it. Just like in a cartoon you picture a snowball rolling down a hill getting bigger as it rolls. The illusion these businesses portrait is that you’re getting out of debt, but anytime you add more snow, no matter how minuscule, to the snowball, the snowball is in fact getting bigger.

So why don’t you reverse that tactic on all these entities that want you to forever pay them your hard earned money. First, make a list of all you debts, in fact make two lists. Order one of the lists from highest interest rate to lowest interest rate. Order the other list from least amount due to highest amount due. Before making these lists, you must convince yourself that no matter what the total debt is you’ve been making these payments and surviving. (If you haven’t you need more help than I can give you.) Decide how much extra you can pay per month. Make it at least $50, I guarantee that you can budget and come up with $50 more dollars to pay towards bills. Now you have to decide what is more important to you. Paying off you debt quickly or saving the most amount of money. If it is the first, start by paying off the creditor that you owe the least too. This is very good if you tend to get discourage or need to see results to stay motivated. If you want to save the most amount of money, pay off the Creditor with the highest interest rate. After you have paid off the first creditor roll that payment into the next creditor bill, you’ll be snowballing you way out of debt in no time.