Debt Counseling and The Dave Ramsey’s Great Debt Snowball Effect

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The Debt Snowball Effect was ‘created’ by Dave Ramsey. The normal logical steps to take to pay of credit card or any debt are to do the follow:

1. Order your debts from highest interest rate to lowest interest rate.
2.Allocate money to pay toward debts each month.
3. Pay the minimum payment on all debts except the one with the highest interest rate.
4.Throw every penny at the debt with the highest interest rate on your list of creditors.
5.When that debt is repaid, do not change or alter the monthly amount used to pay debts, but throw all you can at the debt with the next-highest interest rate on your list.

But then Dave Ramsey came up with the following alternative steps:

1.    Order your debts from lowest balance to highest balance.
2.    Designate a certain amount of money to pay toward debts each month.
3.Pay the minimum payment on all your debts except the one with the smallest balance.
4.    Throw every other penny at the debt with the lowest balance.
5.    When that debt is gone, do not alter the monthly amount used to pay debts, but throw all you can at the debt with the next-lowest balance.

The reason why you should do it the Dave Ramsey way is that psychologically it will give you a massive boost to know you have paid of one of your creditors. You can then cut up that card and close the account and one of your debts are no more.

The customer that is in debt counseling will pay all creditors evenly according to the proposal set out by the debt counsellors. The customer may make additional payments to creditors directly. So instead of paying off the account with the highest interest, the customer will make payments to creditor with the smallest outstanding balance. This tactic will keep the over indebt customer motivated and focus to pay off his debt of faster.

If you are over in debt and cannot pay your creditors each month, you should apply for debt counseling.

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