Rolling Payment Forward as Debts are Paid Off
Sometimes referred to by other names, the Snowball Effect has been around for many years and it goes something like this:
- Take stock of all your monthly debt payment (credit cards, car loans, mortgage, etc).Make a chart by hand – or even better a spreadsheet in a program like MS Excel or Google Documents.
- List each of your cards and other debts, the monthly minimum due, the interest rate and the current balance. I like to also add the monthly due date.
Now there are two schools of thought on the snowball payment:
- Pay off the highest interest rate first.
In the above example that would be Card #2.By paying off the highest interest rate first, overtime you can save money on the overall interest paid. - Pay off the lowest balance first.
In the above example that would be the Student Loan.
Usually by paying lowest balance you will:
- Get the snowball moving faster
- Eliminates the balances quicker
- Be motivated to continue the process
