snowball method

Snowball Method: An Easy 3-Step Process For Your Path To Financial Freedom

The Harvard-Based Technique To Become Debt-Free

Couldn’t resist that trip to the Mayan Riviera last year? Were you going to buy a “normal” mobile and ended up with the last iPhone?

Sometimes the expenses get a little out of hand, and we end up with some holes that we have to cover, and in this case, it will be covered by the Snowball Method.

However, the money invested in their home represents the highest debt item, a total of 77.5% of it. But do not worry; if you have any debt, we will explain how to settle it with the Snowball Method.

Becoming debt-free is the first step to achieving financial freedom. An important point is to always allocate a part of what we earn to savings. But before reaching this point, it is necessary to reduce the economic burdens, that is, the debts that haunt us. How? With the Snowball Method.

The Snowball Method

This system is focused on eliminating debt, both in your domestic accounts and in your business. It is based on prioritizing the smallest debts instead of focusing on the debts with higher interest rates. The Snowball Method was born as a result of the research of several members of the Harvard Business Review.

The experiment consisted of the participants simulating that they had paid their debts virtually. After several analyzes, the researchers came to the conclusion that the factor with the greatest impact was not the amount that remained to be paid, that is, the remaining debt, but the amount that they had managed to get out of the way once paid.

People feel more motivated and hopeful when they see that part of their debt is being eliminated, no matter how small. In other words, focusing on paying off debts with less amount of interest rates tends to have a much more effective effect on the progress of total debt reduction.

The Snowball Method is not just an experiment. Many people are starting to use it every day to minimize their debts, find financial stability and start saving.

An example is found in the blogger dedicated to personal finance, Derek Sall. This person was able to reduce the value of his debt, including his mortgage, by $ 100,000 thanks to the Snowball Method.

His experience was so beneficial that Sall decided to share his spreadsheet on his blog to help others with debt repayment. And we have collected this spreadsheet to help you reduce your personal or business debt. Upon entering the blog, Sall writes the following: “ I suggest that people pay their debts from least to greatest . You will deal with them more efficiently, and you will be able to eliminate all of them sooner than you had in mind ”.

How To Use The Snowball Method

Based on Sall’s spreadsheet, we are going to see step by step how to deal with payments. It is a simple and easy way to understand how to use the Snowball Method.

  1. First, you have to calculate your financial capacity. To do this, know how much debt you can currently pay, the fixed expenses or your maximum budget. The more financial effort you make now to get rid of your debt, the less you will have to pay later and, therefore, the sooner you will achieve stability.
  2. Once the first point is covered, you have to calculate how much you can allocate to the highest debts. The idea is to see if you have the capacity to allocate a greater amount each month to pay them.
  3. Finally, you must enter in the spreadsheet that you have created all the debts you have, ordered from lowest to highest. You must include the interest rate of each of them and the minimum monthly payment for them. With this calculation, you can check how many months you will have to dedicate to paying your debts until you are able to eliminate them completely and have become debt-free.

What do you think of this method? Have you ever considered it? We are sure that it works on its own, but to notice the results, it is necessary that you know the total volume of your debts.

It is important that you manage the remaining amount of your debts and how you pay them month by month. As you can see, organization and motivation are very important to eliminate your debts.

You will see how when you have managed to organize yourself; you will begin to start building your economic mattress and say hi to financial freedom!

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avoid debt

Avoid Debt With These 5 Good Habits

Avoid Debt And Financial Stress

Debts take their toll on us not only financially but also emotionally as they become a source of stress. However, it is possible to live without getting into debt, and it is only necessary to make a change of mentality that allows us to assume different consumption habits.

Nowadays, many people have their lives tied up because of usurious credits whose “payment facilities” were transformed into high interests that will take years to pay. In fact, it is estimated that people allocate 83% of their income to pay debts and urgent expenses that arise each month. However, it is possible to live without getting into debt, and it is enough to change the mentality and assume habits that facilitate saving.

  1. Plan for unforeseen expenses and estimate your monthly bills

It is likely that throughout the year, you will have to face different unforeseen expenses that can shake your economy. In fact, it is estimated that 25.5% of people are forced to resort to a loan to deal with unforeseen events. Therefore, it is better that you plan your monthly bills so that you can save 15% of your income.

  1. Use credit cards less and pay off your credit card balance on time

Many people think that it is convenient to have a credit card to deal with emergencies, but the truth is that these cards are almost never used for this purpose because they are a constant temptation that encourages us to buy products that we really do not need.

In fact, you should keep in mind that credit cards are a monthly loan, so if you do not pay off the credit card balance on time, the interests will be activated, and they are generally very high.

Therefore, it is better that you avoid using them or that you make sure you have the money in the account when the time of settlement arrives.

  1. Understand the loan terms and conditions

63.5% of people consider that they have lacked financial training at the time of signing the contracts. In fact, not knowing how the loan terms and conditions work can lead you to incur debts that you would not have otherwise assumed.

For example, if an offer indicates that you will not pay interest for the first six months, that does not mean that it will not apply later. Many of these offers are designed so that people are encouraged to buy immediately, without considering the expenses they will have to deal with later.

  1. Shop using your savings

At present, almost all products and services can be purchased using credit, but the problem with paying with “comfortable instalments” is that interest rates are generally very high, so the final price shoots up.

Thus, a strategy to avoid debt is to save, in the old-fashioned way, and buy only when you have the money in hand or at least a large part of it. In this way, you will also value the product or service much more because each purchase you will make is planned out instead of spending money all carelessly and all over the place.

  1. Reduce your needs and avoid overspending

The ability to save has diminished as a result of the crisis, so it is important that we rethink our buying habits to avoid overspending. In fact, it is not necessary to change the mobile every year, and if an appliance breaks, you can try to repair it instead of immediately buying a new one. To save and avoid debt, it is essential to change your attitude and understand that you can be happy with much less.

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