The snowball debt method - Deepstash

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Snowball vs Avalanche: What's the best way to pay off debt?

The snowball debt method

The snowball debt method

With this method, you pay off your debts from the smallest balance to the largest balance, regardless of interest rates.

When you pay the smallest debts first, you start to clear your low debts away very quickly. Doing this feels empowering. Once you've paid off a debt, you will have more money to send as an additional payment to the next debt you are focused on (hence the snowball analogy.)

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Regular monthly bills
Regular monthly bills

The bulk of your budget is made up of necessities like rent, phone and internet bills, insurance, etc. If you can lower your monthly expenses, you can save a lot for unplanned events.

  • Find a cheaper place to live.
  • Get a cheaper phone plan
  • Find a better insurance company
  • Grocery show once a week, so you don't waste food.
Debt when you're on a tight budget

There are a couple of paths you can take to pay off your high-interest debt when you're on a tight budget.

  • The snowball method. For those who need to see progress, pay off the lowest balance first. You'll feel inspired to keep going.
  • The avalanche method. Choose the debt with the highest interest rate to pay off first. This may require larger monthly payments and will take longer to see progress, but you will save the most money in the long run.
  • If you need to prioritize your credit score, focus on paying down your credit cards first. Paying the ones you are near to maxing out will improve your score quickly by a few points.
  • Set up payment plans, even if you can only afford a few dollars at a time. That way, your lenders can see you're paying something.
Incorporate unplanned entertainment in your budget

Financial professionals will advise you to cut out expensive nights out. In truth, you will have night's out, even when you're dirt poor.

To incorporate unplanned entertainment, set aside an amount each month. Be realistic. You can open another savings account for fun spending or you can use cash only.

Refinancing your home
Refinancing your home

When mortgage interest rates get low, refinancing isn't always the best choice.

Deciding when to refinance your home loan depends on several factors besides whether you can get a better mortgage rate.

Reasons to refinance your mortgage

The two big reasons to refinance are:

  • To reduce your monthly mortgage payment
  • To save on the overall interest you will pay on your house in the long run.

Refinancing does not always reduce the monthly payment or save on the overall interest.. A loan officer or mortgage broker can help you run scenarios that show you the cost and potential savings of refinancing.

How long you keep your home

Generally, it makes sense to refinance if you plan on staying in your home for many years.

If you plan to sell the property soon, don't refinance. Refinancing could take years to break even and begin saving you money.