The Snowball Route to Debt Freedom

With so many people overrun with debt worries lately and the economy perilously hanging on the balance between wanting more spending (consumer confidence) and less borrowing (on the verge of defaulting on loans), it's no wonder that people are looking into more than one way to get motivated.

There are two well-known ways to pay down debt and secure some financial freedom.  I just learned of a third, which I'm going to share with you here.

There's no right or wrong way to pay off debt. Read through these ideas and find out which one works best for you.

3.  Pay Off the Most Troublesome First

If you have a debt that makes you angry every time you look at it, that might be the first one you want to pay off.  Regardless of how much interest you're paying or what the minimum payments might be, if this is a debt that happened because of a break-up, financial disaster, lawsuit, or other extremely unpleasant condition, you might find the greatest sense of freedom from paying this one off first.

2.  The Snowball Effect

This works well if you have a ton of different creditors to pay off.  You simply pay off the one with the lowest balance first.

Say you have one credit card with a $6,000 balance, another with a $600 balance, and 5 more cards with balances in between.  By paying off the lowest balance first, you get the psychological high of only having 6 cards on your list instead of 7.  What's more, you can now take the money you were paying to that lowest balance and add it to the amount you're now paying on the next highest balance.

Result? You will FEEL that you're making faster progress!

(It may not be true mathematically, but your feelings affect your ability to hang in there until the end.)

3.  Pay the Highest Interest Rate off First

This is the oldest recommended technique, probably devised by an accountant sitting in a back room somewhere. It is the most logical way to repay your debt, because the highest interest rate is taking the biggest bite out of you.  Getting rid of that first will make the most sense mathematically.

Unfortunately, it might feel like it takes forever to pay off that one card.  People can get discouraged this way, and make themselves feel better by buying a huge TV, expensive vacation, or a swimming pool -- with credit.

So, if you've got a cool head, this is the oldest and one of the best ways to do it.

Keep the Faith.

Keep the faith. You can really pay off all that credit card debt.  You can find the extra income and the motivation to keep a budget, stick to it, and succeed.  If you need more income, you might find that a second, part-time job might help.  You can consolidate debt into a better interest rate.  But no matter what road to success you take, you have to believe you can do it, because that's what keeps you motivated.

Try this suggestion: Every night before you go to sleep, get into bed and take a few moments to appreciate the soft pillow.  Think back and identify at least one to five good things that you remember from that day.  After all, that's why you want more freedom from debt -- you want to have a life you can enjoy.