Tonight we checked in with our Debt Destroyer Family and gave them a plan to tackle their credit card debt in one year using something called the snowball method.
As you may recall, this is the family 8 On Your Side has chosen to help get out of debt in one year. Rather than giving them money, we are giving them tools to learn how to manage their money, live on a budget and pay off debts quickly.
Mother and daughter Tammy Coffin and Azalee Maslow have a combined credit card debt of more than 10 thousand dollars on 9 different cards.
In January, they agreed to join the Financial Guidance Center's debt payment plan. Here's how the plan works. The Financial Guidance Center talks to each creditor to slash the current interest rate. In some cases it will go as low as zero percent.
Then, each woman agrees to cancel their cards and gives the Financial Guidance Center a certain amount of money to pay off their debts.
Tammy agreed to giving $400 and month and Azalee agreed to $800 a month.
The Financial Guidance Center then pays your creditors off using the snowball method.
You can sign up for the service for free through the Financial Guidance Center at anytime but you can also attempt it on your own.
Here's how it works.
First you make minimum payments on all of your debts except the smallest one. That’s the card you are going to put the majority of your extra cash onto attack the debt.
You want to use all extra cash you have to pay off that debt fast! This is why you must stick to your budget and if you don’t have one, start one immediately. We’ve gone over budgeting many times. If you need help making a budget, contact the financial guidance center or pull up one of our old reports.
Now, once you have paid off the card you have been putting all your extra cash toward, you start working on the next lowest balance.
All of the money you were paying on the prior card now snowballs onto the next card, plus you add the minimum you were paying on that one.
Once that card is paid off, take that combined payment and go to the next debt. Knock them out one by one.
Here’s an example:
Card 1: $500 ($50 Minimum)
Card 2: $1000 ($100 Minimum)
Card 3: $2000 ($200 Minimum)
In this example, you will make the minimum payments on Card 2 and 3 but put all your extra cash on Card 1. Say the extra amount you can pay is $400. You’ll have that first card paid off in 2 months. Once it is paid off you will then put the $400 toward card 2. You’ll also add the $100 minimum you have been paying … so you’re total will be $500. You’ll have that card paid off in no time. Once it is knocked out… you put all your money on Card 3.
While this example is very simple, it illustrates the point effectively.
Remember, the debt snowball isn’t magic just something to modify your spending and budgets.
Still have questions??? Call the Financial Guidance Center. They are here for you and will help you for free. You can also seek out other's advice. Dave Ramsey has several articles on the issue like this one here.
Copyright 2016 Nexstar Broadcasting, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.