The Debt Snowball Method

While you can tackle debt in any way you choose, some of the most effective repayment plans approach the task with a method known as the “Debt Snowball Method.”

Your journey to financial freedom requires a number of components for it to function. These components range from saving, to investing, to having multiple streams of income and so on.

This is because without saving, you would spend all that you earn and when you don’t save, you would ultimately have nothing to invest. However, one key component is how much liability we have in our books.

For both personal and corporate finance, debt is a key to for wealth generation. Businesses take loans to facilitate operations, to finance huge projects, and so much more.

Likewise, individuals take loans to turn their ideas into workable businesses that generate profit. Whether it is in a structured setting or not, we as individuals have taken a form of loan at one point or the other.

Think about the airtime we borrow from our communication networks. How about our credit cards? You might have taken a short loan as well to help you handle your running costs until salaries came. The list goes on.

This goes to show that debt in itself is not a bad thing because it is indeed relevant in various facets of our lives. What is bad is when an individual or company has acquired way too much debt that a full and scary portfolio of debt has been created.

It becomes a challenge to both any individual and any company when repayment becomes a highly difficult task. And because it drags a lot of things along with it, we end up spending all the money we earn repaying without seeing so much of an improvement in our lives.

This ultimately affects us psychologically until we feel like the world has turned against us. If this chronicles the position you’re in right now, they you are dealing with debt the wrong way.

If you are stuck in so much debt it has become overwhelming, the first thing you must do is stop borrowing. Many of us make the mistake of using debt to finance debt and this is very wrong.

Rather, the focus should be on increasing your income sources. Next, create a debt repayment plan. A debt repayment plan is as the name implies – It shows you how to repay debt.

It helps you list out all the debt you have in relation with all your expected income sources. While you can tackle debt in any way you choose, some of the most effective repayment plans approach the task with a method known as the “Debt Snowball Method.”

The debt snowball method is a debt-reduction strategy. It approaches debt by starting the repayment process by paying off the smallest loans and moving to the next smallest ones.

It basically means that you tackle the ones within your control instead of spreading yourself too thin. It, therefore, involves you itemizing your debts from the smallest in size to the largest of them all and then paying off the smallest first, then the next smallest, and so on.

It helps you see progress every step of the way and allows you build momentum as you go on.

With the right debt repayment plan in motion, your debts would be cleared before you know it and investing in stocks wouldn’t seem so much like a luxury thought anymore.

Written by Lawretta Egba