When you want to reduce your debt without taking out a loan or borrowing any money, there are two ways to do this. You can choose between two popular debt reduction methods – the snowball or avalanche method. Both will help you get debt free after a while. However, one method may work better for you than the other.
If your debt is small and your credit is good, you may want to consider a balance transfer credit card. This could be one of your best options to reduce debt. It may enable you to get up to two years to pay down your debt completely interest-free. Some credit cards of this type may also offer very low-interest rates on debt transferred to them. However, watch out for cards that charge a percentage of the amount transferred because many cards do not charge anything.
The Snowball Method of Debt Reduction
The snowball method of eliminating debt involves focusing on your smallest debt first. With this method, you continue to pay the minimum on all of your bills, but you will pay more on your smallest bill until it is completely paid. Once eliminated, you take the same amount of money you used to pay that bill and apply it to your next largest bill – on top of your regular minimum amount.
The Avalanche Method of Debt Reduction
Another way to reduce your debt is to use the avalanche method. This method has you start paying extra on the bill that has the highest interest rate. At the same time, you keep paying the minimum amount on all of your other bills. Then, when that bill is completely paid, you put extra money toward the bill with the next highest interest rate.
The debt snowball method is apt to give you more motivation to reduce your debt as you make the payments. This is because you will see your bills become fewer faster. The faster results will let you see the results you hoped for, encouraging you to continue paying off your debt.
If you have a lot of little bills coming each month, you will be glad to see fewer of them quickly. It will also help you have less stress as you begin to see the debt reduction results you want.
The debt avalanche method may enable you to save some money because you pay off the debt with the highest amount of interest first. Results of fewer bills to pay, however, may not occur for some time. It depends on which of your bills is the largest.
No New Debt
As much as possible, avoid adding any new debt. Do not charge anything on your credit cards and eliminate all unnecessary payments on things you do not need. You might also find less expensive ways to pay for car insurance, house insurance, cable TV, car payments (get a less expensive car), etc.
Both debt reduction methods will get you where you want to be – debt-free – before long. In many cases, the difference in how much you pay and how soon you can be debt-free only matters slightly in the long run. The important thing is that you start now putting extra money toward your bills to give yourself a brighter financial future.