The secret to getting out of debt is using a payment snowball
The two most common payment snowball strategies for getting out of debt are Avalanche and Snowball. Avalanche priotitizes paying off debts from the hightest interest rate down to the lowest interest rate. Snowball prioritizes paying off debts by those which can go away the quickest. You will most likely choose a payoff strategy that best fits your personality.
| Personality Trait | Strategy |
|---|---|
| I'm a numbers person. Numbers make sense to me. | Avalanche |
| I am not numbers person. Numbers scare me. | Snowball |
| I want to save the most money no matter what. | Avalanche |
| I want to get out of debt as fast as possible. | Avalanche |
| I'm looking for fast results. I like to see progress. | Snowball |
| I need lots of encouragement along the way. | Snowball |
Avalanche
The avalanche payment strategy organizes your outstanding debts by highest interest rate. With the highest rate debt at the top and the lowest rate debt at the bottom. You make the minimum payments on all your debts except the one at the very top. Any extra money you have available gets added to the very top debt each month until that debt is paid off.
When the top debt is paid off, that money drops down to the next highest interest rate debt. This is the start of the avalanche. This additional money speeds up paying off debt number two. It's just like an avalance where the accumulation of snow from above keeps growing as the weight of more snow is constantly added. As each debt is paid off the speed at which the next remaining debt is paid off increases.
The ZilchWorks payoff strategy of Annual Percentage Rate = Avalanche
Snowball
The snowball payment strategy organizes your outstanding debts according to how quickly they can be paid off. This puts emphasis on getting rid of the easy to payoff debts first. You make the minimum payments on all your debts except the one at the top of the list. Any extra money you have available gets added to this debt each month until that debt is paid off.
When the first debt is paid off, that money is added to the next debt in the list. This is the start of the snowball. This additional money speeds up paying off debt number two. It's just like a snowball where the accumulation of snow from rolling a snowball around adds to its size and weight. As each debt is paid off the speed at which the next remaining debt is paid off increases.
The ZilchWorks payoff strategy of Quick Elimination = Snowball
The concept of payment snowballing explained
Transcript:
Zilch uses what is called a payment snowball. And the payment snowball can be best explained by a pie chart. Each one of these slices would represent a debt.
The example we have in Zilch Standard has four but Credit Card Math uses five. To get started you assign a payoff priority to each debt.
Now, what does that mean? In life you can only focus on one thing at a time. Well, your repayment plan can only focus one debt at a time. The pledge money would get added to the first priority which is debt number one. By focusing on one priority at a time it maximizes the use of your money.
When the first first priority is paid off look what happens the money that was going to number one which is the payment plus the pledge money, now shifts to number two. Let's just watch the rest of this slide.
What do you think happens when two gets paid off? Exactly. So this is why each debt is being assigned a priority. When three gets paid off all the money shifts to four. When number 4 gets paid off everything is going to the last debt which would be priority number five. At this point your payment snowball is incredibly powerful.
❝You'd think someone with a Finance degree would be able to avoid debt❞
You'd think someone with a Finance degree would be able to avoid debt, but my husband and I hadn't avoided it. I had quit working to raise our family, and two of our children had major medical bills. We found ourselves in over $80,000 of mostly unsecured debt. I was desperate when I found ZilchWorks. Your software was like a ray of light shining in on our dark situation.
Lovina Penry - California
When I SAW, that we could be debt free by 2011, even though that was years away, it was just the motivation I needed. The printed reports have been vital in our success. They keep me on track when I am tempted to spend money I shouldn't be. I keep them handy so I can glance at them and remind myself where we are headed. The idea that we will have financial freedom THIS YEAR is exhilarating!
I now have the desire to help others get out of their debt situations, so I am happy to tell the world that ZilchWorks can get you there. And by the way, this is a “paid” testimony... we've been “paid” all the interest that would have been shelled out to lenders had I not found this program.
I pray we never find ourselves back in the credit card mess we were in. But if for some emergency we do, I will have the tools ZilchWorks taught me to get us out of it!