Debt Elimination: Snowball Effect

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The discipline for getting rid of debt can be very tiresome but extremely rewarding. One concept on getting rid of debt faster is utilizing the ‘snowball effect’. This is when you are able to pay off one source of debt in full, possibly by paying more than the required minimum monthly amount; and then using the entire recurring amount towards another source of debt.

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An example of the ‘snowball effect’ would be that if you had three credit cards, each requiring a minimum payment of $30/mos. You have an additional $25 to pay towards debt each month so you decide to put that toward one of the credit cards, preferably the one with the highest interest rate. You now commit to paying $55/mos on the one card while still paying the minimum $30/mos on both of the other credit cards. Once you pay off the credit card with the highest interest rate, you would apply the entire $55 monthly commitment to one of the other credit cards, thus paying $85/mos on the 2nd credit card and continuing to pay $30/mos on the third credit card. The 2nd credit card should be paid off even faster! Once the 2nd credit card has been paid off, you can then put that monthly payment towards third credit card, making its monthly payment $115/mos. Instead of putting that monthly amount back into your budget for additional spending, add it to your other debt for faster elimination. You have now tackled three sources of debt without having to acquire any extra income. Aren’t you smart!

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When using the ‘snowball effect’ it’s wise to first focus on the debt with the highest interest, unless it’s something large like your mortgage which would take 30-40 years to pay off. Being able to pay all of your bills is a blessing that many of us struggle with monthly! The only upside to living paycheck-to-paycheck is the consistency. Utilize what you have to pursue what you want. It may take some time but it will be well worth it! Yes, having credit is great for large purchases (ie. Even larger debt) but taking care of the credit you have is most important. Instead of buying coffee or lunch everyday, limit yourself to 3 times a week. The savings you acquire from any form of discipline can go towards eliminating your debt. If you are able to put more than the minimum payment towards at least one source of debt, use it to get rid of that particular debt…then don’t get too excited and go on a shopping spree but instead put it towards another source of debt so that you can be completely debt free. That’s when its time to party!

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The concept of the ‘snowball effect’ requires discipline and planning but is very effective – as long as you do not acquire more debt along the way. The idea is to make sure that you are planning out your debt elimination over a longer period of time and staying committed to getting rid of ALL debt strategically. Our goal should not be to free up more funds to borrow more, but to use your funds to get rid of the debt WE’VE acquired. I think we forget as consumers that OUR debt is OUR responsibility. At some point we borrowed funds to pay for things, and now we have to pay it back.

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Danita Sims is a Workforce Consultant with extensive experience in social services, workforce development, and case management. Ms. Sims has assisted a variety of job seekers, including veterans and disabled adults, with finding employment and adjusting to career changes. Many of her clients seek to transition into new careers with financial and educational barriers hindering their success. Ms. Sims also shares resources, teaches Employment Readiness, and provides solutions for small businesses in her community. Born and raised in Chicago, IL, Ms. Sims has a passion for helping people progress towards their career/entrepreneurial goals and is an advocate for education. Her BA degree is in English with a minor in African America Studies from SIUC where she also studied creative writing, journalism, and education. She also has a Master’s in Urban Planning and Policy (MUPP) with a concentration in Community Development from UIC. Among her peers, she is known for simplifying complex issues, offering conflict resolution, and being able to connect with individuals of various socioeconomic statuses, cultures, skill sets, & educational backgrounds. Ms. Sims also has experience in Business Development and uses her ability to create and maintain strategic partnerships that would influence a community as a whole. Find ladiSims on Instagram, Twitter, and Periscope.


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