Anyone who has been in debt knows how stressful it can be. Most people either don’t know what to do about turning their financial position around or are trying to reduce their debt but are not getting anywhere. The best way to reduce your debt is by applying a “debt snowball”. Keep reading and you will have a good understanding of what it is and how to apply it to your circumstances.

**What is a debt snowball?**

There are a couple of things to understand first –

• If you only pay the minimum payment every month, you will have paid a huge amount of interest by the time the debt is paid off. This interest will total many times more than the original debt.

• If you think paying off a little more than the minimum payment each month – say, $50 more – will help, think again. You will pay off the debt faster, but it will still cost you in interest.

The idea of the debt snowball is that you pay off one debt at a time, using all the spare cash you can find each month. So, you pay the minimum on all debts except the one you have chosen. You take any extra cash you have and throw it at that debt to get it paid off faster. When it is paid off, you take the money you were paying on that one, add it to the snowball and throw it all at the next debt on your list.

With each account that you get paid off, you add that minimum payment to the snowball and the money you have available to throw at another debt becomes larger – just like a snowball rolling down a hill.

**There are two types of snowball**

1. The smallest balance snowball – the advantage with this snowball is that you get one debt paid off quickly; this gives you the incentive to keep going. You get the feeling of elation that you are finally getting somewhere. You are actually reducing your debt! With the smallest debt now paid off, you attack the next smallest one using the money you were paying against the first debt plus the original minimum payment from the new targeted debt. This debt is paid off much faster than you would have previously been able to and so you target the next smallest and so on.

2. The highest interest snowball – the advantage with this snowball is that you are removing the most costly debt. (in terms of interest you will pay) The disadvantage is that it could take you some time to achieve your first success.

Both snowballs are highly effective at getting you out of debt quickly, and it is an individual choice based on your own circumstances, that will decide which one to use. There is a free program called Debt Reduction Calculator for Excel 1.0 available for download from www.download.com which allows you to calculate how long each of these snowballs will take you to become debt free.

Read **The Debt Snowball Explained – Part 2** to discover more about debt snowballs and how a snowball might be the answer to your financial troubles.