Getting the debt snowball rolling
7. maj 2009
Two prevailing methods of getting the snowball rolling are found in the blogs.
Both demand that you list all your debts and find out what the minimum payment and interest rate is on each of them.
Method #1: Pay the minimum on each loan, and as much extra as possible on the loan with the highest intrest. Apply all extra cash towards the principal of that loan.
Once it is paid off apply that minimum to the the minimum of the loan with the next highest intrest + any extra cash. Keep going until all loans are paid off.
Method #2: Start with the loan that has the smallest principal. Then move to the loan with the next smallest principal, to sort of get the snowball rolling.
The latter is the method I prefer. It seems very motivating even realizing that I will be paying more intrest that I would have to. I also believe that I will combine the two methods along the way.
My challenge is that I have 8 loans to pay down. My wife and I dont have any credit card debt or car loans, so the loans are mortgages, debt from failed businesses, consumer debt and private loans (from friends and family).
Here is the run down:
|Bank loan I||101,000||489||6,0%|
|Bank loan II||64,333||542||8,0%|
|Bank loan III||58,333||0||9,6%|
|Private loan I||1,833||167||0,0%|
|Private loan II||33,333||0||0,0%|
|Monthly total payment||3,939|
The initial plan is to pay of the small private loan first. This is a friend loan and one that I dont particularly like.
Once that one is paid off, we will then add the payment to the payment we are making on Bank loan II, to get this loan paid down.
We also plan to sell our home, which would fully pay down mortgages I and II as well as Bank loan III.
Check in later to follow my updates on the plan.
What are your thoughts about this topic?