Are you struggling with debt and unsure if you will ever be able to pay it off? While it may seem hopeless, it does not have to be. There are ways to get out of debt no matter your situation.
Here, we discuss two popular methods: the debt snowball method and debt consolidation. For those of you who are willing to try to get out of debt on your own, the debt snowball method might be a good choice. Others who are looking for more guidance may want to reach out to a debt relief company to help them with a debt consolidation program. Read on for an overview of these two ways to pay off debt so you can choose for yourself which approach, if either, is the best way for you to get rid of your debt once and for all.
What is the Debt Snowball Method?
With this method, those with more than one debt pay their minimum balance on every single debt and use any extra money to pay off their debt, starting from the smallest balance to the largest balance.
For example, if you have three credit cards with outstanding balances of $1,000, $2,000, and $3,000, you would make the minimum payment on each card and use any leftover money you have at the end of the money to put toward the principle of the card with the $1,000 balance, regardless of whether that interest rate is lower than the other cards.
Having multiple debts that each have monthly payments to keep track of can feel overwhelming. Bills can get lost, payments can get missed, and stress can be elevated when dealing with so many accounts. By eliminating your debt from the smallest to the largest balance, you will start to clear the smallest debts from your plate and slowly but surely only the larger ones will remain, until you have paid off your debt entirely.
As a bonus, paying off debt, even if it is small, is a great boost to your confidence and mindset. While there is a benefit to this method, mostly because it helps you conquer your debt by getting rid of them one by one and boosting your confidence along the way, it will not reduce the amount you pay. Over time, you still must pay off the entire balance of all of your debts.
What are Debt Consolidation Programs?
A debt relief company can help set you up with a debt consolidation program to pay off your debt within a few years. After meeting with a counselor from the debt relief company, who will discuss your debt with you and come up with a payment plan, the debt relief company will work with your creditors to negotiate ways to lower your monthly payments. This may include reducing the interest rates and/or lowering the monthly payments on all of your debt. Instead of making individual payments on each of your credit cards or other debt, you will make one lump payment to the debt relief company, which in turn distributes the money to each of your creditors in an amount that has been agreed upon and negotiated on your behalf.
In addition to getting creditors to lower interest rates and monthly payments, a debt relief company may be able to work with creditors to waive late fees and other fees on your account. The result is that you will likely end up paying less over time as you work to pay off your debt.
Which Approach should I choose?
If you are confident that, with some management, you will be able to pay off your debt on your own, the debt snowball method might be the right approach. However, if your debt seems unmanageable and you need help lowering your monthly bills, a debt consolidation program is likely the better choice.