If you are one of many people who are struggling to pay off high debt balances, you may be wondering if there is an easier way to accomplish your goal. Some people commonly divide all of their extra funds each month evenly between various debts, but this may not be the most effective way to see significant results. By doing basic math and calculating the benefits of different debt reduction strategies, you may be able to find a more effective solution for dealing with your personal debt situation.
List Your Debts
Before you can crunch numbers and figure out the most effective debt reduction strategy for your situation, it is important to understand clearly what your debt situation is. Create a list that includes a line item for each debt that you have. Next to the debt’s name, list the monthly payment amount, interest rate and outstanding principal amount. It is also beneficial to list if the debt is a revolving or fixed term debt. If it is a fixed term debt, research how many months remain on the loan.
Consider the Snowballing Method
With this information outlined clearly in front of you, you can easily crunch numbers to determine if the snowballing method of debt reduction would benefit you. The snowballing method means that you take all extra funds available for debt reduction each month and focus that money on paying off one specific debt. Most people either begin with the debt that has the highest interest rate or the smallest balance. By paying off these debts first, you can make your money work more effectively for the next account that you pay off. You will progressively target the account that has the highest interest rate or the smallest balance until all debts are paid off. The amount of extra money you have available for an extra payment each month will increase substantially over time.
Research Debt Consolidation Benefits
Debt consolidation loans may also be an effective way to better manage and reduce debts. You can use an online calculator to analyze the total interest charges and final debt payoff debt under a debt consolidation loan versus if you keep your debts in their current forms. Most people may be astounded to discover how much money they can save by consolidating debts.
With several effective methods to improve your debt reduction efforts, you can see that math calculations are incredibly useful in your effort to achieve your goals. Keep in mind that online calculators are available and can help you to crunch numbers with ease.