Important Things to Consider When Reducing Debt

1. If you continue to charge to the credit card during this process… you would have to pay off the total amount of new charges in addition to the scheduled payment in order to keep the snowball going.For example, if while paying off Card #1 ($255.00 a month) you charged for new clothes in the amount of $200.00; then your payment that month would be $255.00 + $200.00 = $455.00.
2. As time goes by, the next lowest balance may change.For example, by the time you pay off Credit Card #1, the auto loan balance may be lower than Credit Card # 2 balance.You would then have to re-evaluate your strategy.
3. Some loans may take longer to reduce because of the way they compound.Student loans have been shown to re-compound when applying additional principal.
4. If your interest rate changes you may need to re-evaluate the process.If you are paying off the loan with the highest interest rate first and another debt incurs a higher interest rate, you may need to re-set your sights for the snowball to the new higher interest rate debt target.
5. If you are paying off a loan be certain that you will not incur pre-payment or early payment fees.Check with your Lender, CPA or Attorney for assistance.

Funding the Snowball