I remember being a child I loved spending hours playing in the snow. To build a snowman it is best to start with a small ball and push it through the courtyard until we have big snowballs.
It was a great way to build snowballs as a child, and it’s an even better way to pay off your mortgage debt.
This is called a debit ball. You can start when you start paying all your bills and have already put aside a minimum of £1000 for an ’emergency’. This is the best decision you can make in your life – seriously.
How does the debit ball method work?
The debit ball method is a strategy of paying off debts in the order of the smallest to the largest, with an increasing rate after paying off each balance. When the smallest debt is repaid, we add this money to the next one.
It looks like this:
Write all your debts down on a sheet of paper. We pay the minimum for each of them after the smallest. We pay as much as possible (as much as we can) for the smallest. Repeat this process until the last debt is paid in full.
In practice
Let’s say we have 4 debts
£500 per Wonga loan (minimum instalment of £50)
£2,500 on credit card (minimum instalment £63)
£7000 auto loan (minimum instalment £135)
£10,000 bank loan (minimum instalment of £96)
Using the ball method, we make a minimum repayment to each of the bills after the loan from Wonga. For the purpose of this example, let’s say that you have an extra £500 from extra work on amazon (or any other work you’ve done to get out of debt) and to keep your expenses to a minimum (I’m talking here about no food purchases that are essential for life!).
Because you will pay back £50 for a loan from Wonga (£50 minimum + £500 extra) you will pay it back in a month,For the second month we take these 550 pounds we pay into your credit card + 63 pounds which we have as a minimum repayment (550+63 = 613 pounds repaid) this speed in about 4 months you waver at to see your credit card 🙂 Next on the list is a loan for a car we take 613 pounds Verizon 135 pounds minimum repayment (613+135=748 pounds per month) In 10 months auto repaid! Don’t give up now you are so close to freedom!
Once you reach your highest debt level you will be able to repay £844 every month. This means you will get rid of it completely in less than 12 months!
Thanks to your hard work and dedication you have just paid back £20,000 in 27 months using the snowball method. Congratulations to 🙂
Why does the snowball method work?
Debt repayment by balls works because it concerns behavioural modification and not mathematics.
In our example, if you start paying for a loan from a bank for a long time, you will not see the effects because it is the biggest debt. Starting with the smallest debt you will quickly see the effect and the debt will disappear from your life forever and because you get used to the ‘disappearing’ money you can add it after paying the first one to the second debt and so on until the end. When you see that the method works you will stick to it. Suddenly you will wake up and be free of any debts. Just like we did, you can read about our adventure here.
Until then, you will have all the money (which you used to pay the instalments) ‘free’ and you will be able to start depositing it! And the boom instead of paying the debts is postponed every month and you do not even feel it because you have become accustomed to ‘disappearing’ money, but about it later…
Ready to try the ball method. Let me know.
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