Welcome to the winter wonderland of debt reduction techniques!

by Kam Shots

We aren’t getting any winter weather around here. However, when you talk about debt reduction, you get your very own frozen fun.

Debt Snowball

Despite fun mental images to the contrary, the Debt Snowball approach does not involve making giant spitballs out of your credit card billing statements and bombarding company executives with them.

Instead, for Debt Snowball approach, you:

  • Gather all your debt.
  • Sort it by balance.
  • Figure out how much extra per month you can spend towards paying off debt.
  • Pay the minimum amount on everything, but the debt with the smallest/lowest balance. For that debt, pay:
    • Its minimum payment;
    • The extra amount you figured you could spend each month.
  • When the debt with the smallest balance is paid off, move on to the second smallest balance.
  • This time you pay the minimum on everything, but the second smallest. The second smallest then gets:
    • Its minimum payment;
    • The extra amount you figured you could spend each month;
    • AND the entire payment amount from the first smallest/lowest balance debt.

The last line is the snowball part. Every time you pay off one debt, the next debt gets that much more money towards it the next month. It snowballs!

by Oakleys Originals

More Information on the Debt Snowball

Apps to Help You Create Your Own Snowball

Debt Avalanche

by S. Gilies

The Debt Avalanche is simply the Debt Snowball using interest rates instead of balances:

  • Gather all your debt.
  • Sort it by interest rate.
  • Figure out how much extra per month you can spend towards paying off debt.
  • Pay the minimum amount on everything but the debt with the highest interest rate. For that debt, pay:
    • Its minimum payment;
    • The extra amount you figured you could spend each month.
  • When the high interest rate debt is paid off, move on to the second highest interest rate.
  • This time you pay the minimum on everything, but the second highest. The second highest then gets:
    • Its minimum payment;
    • The extra amount you figured you could spend each month;
    • AND the entire payment amount from the first highest interest rate debt.

The avalanche approach allows you to pay less interest.

Most apps allow you the option to snowball or avalanche as you choose.

Credit Card Popsicles and Other Tips

I took a living debt-free course a few years ago. One of the suggestions was to freeze your credit cards so it was harder to use them impulsively. BRRR! Has that worked for anyone? I want to know.

Even if you aren’t into making popsicles, I highly recommend getting your free credit report every year to see what’s going on with your debt situation…and to find out if you’ve suddenly moved to rural Utah and opened up an exciting business purchasing livestock with your credit cards. I’m a big fan of Credit Karma for your Credit Score, too.

I offer these website with similar (or even more useful) debt elimination tips:

Mint.com – One Site to Rule Them All!

Tolkien is shooting daggers at me right now, but I wanted to emphasize how ‘precious’ Mint.com can be for you.

Mint.com allows you to see all of your money, including bank accounts, loans, property, and investments, in one place.

Mint.com is free. Sign-up is relatively painless, though gathering all your loans and credit cards and other debts can take some time.

Mint.com has apps for iPhone, iPad, Android phones, and Android tablets.

Take the time to do this! It can help you with all the other items above.

What do you use to fight your debt?