How to Get Out of Debt Using The “Snowball Effect”

When someone is in debt and struggling each month to pay the monthly payments, their mind can get a bit clouded, yet focused. Try to imagine that.

They are focused on getting out of debt, but clouded due to the fact they cannot see outside of the bubble they are in, the debt bubble.

All they are seeing is how fast the first of the month arrives, and the bills are once again due, and how quickly the interest and charges are mounting on the accounts; especially credit cards.

It is easy to feel overwhelmed and swamped by the bills and debt, and not be thinking as clearly as you would like to be.

However, there are ways to get out of debt, many of them. Some you can do on your own, and some with the aid of third parties.

And sometimes as in “Occam’s Razor”, the simplest answer may be the best, or better way to deal with something; in this example debt.

One simple way is the “snowball effect”.

What is The “Snowball Effect”?

Think of a snowball rolling down a large hill that is snow covered.

As the snowball rolls downhill, it gathers more snow, and with the gathering of more snow, becomes larger and larger, until when it reaches the bottom of the hill, it is as large as it can be.

How Does it Work With Debt?

This is how we are going to approach our debts, like a snowball rolling down a hill, gaining momentum and getting larger, or in this instance, our debt getting smaller.

The first step is to list all your debts in order, starting with the smallest balance, moving upwards to the account with the largest balance.

We are not concerned with interest rates and which account has the lowest or best interest rate, just the balances for now.

Next we are going to list the minimum monthly payments by each account, the minimum payment that would be accepted each month.

Then we do an income and expense sheet, listing all our bills and income, including the minimum payments to our debts we have. We are looking for any surplus money to use to get this snowball rolling.

We are going to use this extra money each month to begin paying more than the minimum monthly payment on the first debt we have on our list, the account with the lowest balance.

By paying this extra money/payment each month, we will pay the account off at a quicker rate.

Once this smaller account has been paid in full, we move on to the next account, the next larger balance account.

We then pay the minimum payment for the smaller account we just paid off, in addition to the extra we had been paying towards the account, and add it all with the minimum monthly payment to that next larger account; which will pay it off early.

You continue this process of the snowball/monthly payments getting larger and larger, until all the accounts are paid in full.

Your debts are paid off, you did not use any third party help, and you did not impact your credit by using any forms of insolvency, or debt management.

Besides getting out of debt, there are some positive aspects to this method of paying off your debts.

By beginning with the smaller or lowest balance account, and paying it off quickly, you see results, which helps to reinforce you in what you are doing.

You will pay less interest over time on the accounts.

And by the time you get to the last account, you will be making sizeable payments each month towards the balance.

So snowballs, they’re not just for Winter any more.

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<strong>What is Our Criteria For Applying?</strong> 
Every lender on our website has their own specific criteria by the basics are mentioned below and you must have a guarantor to be eligible. Simply select the lender of your choice and you will be taken directly to their website where you can apply. You will be required to submit your details including:<li style=”text-align: center;” data-mce-style=”text-align: center;”>Name (must be over 18 as the borrow, 21 or 25 as the guarantor)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Residence (your chances will improve if your guarantor is a homeowner)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Employment status (must be employed or on a pension)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Income (earning at least £600 per month and able to make repayments)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Monthly expenses (not have too many loans open or in major debt)</li>
You will then be asked to include the details of your guarantor and as mentioned above, this is usually someone who you know and trust and wants to help you with your personal finances. Ideally, a guarantor with good credit will maximise your chances of being approved based on the idea of ‘if someone with good credit trusts you, well we can too.'<strong>How Much Can I Borrow From Guarantor Loans?</strong>Guarantor Loans gives applicants the chance to borrow £500 to £15,000 depending on the lender. Some lenders we feature like Buddy Loans only have a maximum loan value of £7,500 and TFS Loans is the only lender that stretches up to £15,000.Factors that can influence the amount you can borrow revolve around having a good guarantor. One that is a homeowner, with solid employment, income and good credit rating will maximise your chances of borrowing the largest drawdown possible.The lenders featured on Guarantor Loans see a homeowner as someone who has already gone through the rigorous process of credit checking and affordability and if they can afford a house, they should be able to act as a guarantor for you.By comparison, having a guarantor that is not a homeowner offers slightly less security and means that amount you can borrow is slightly less too.Higher amounts may be available to those who already have a better than average credit rating, are homeowners themselves and a repeat customer with the lender who has already paid their loan on time. To apply directly with your lender of choice see <a href=”” data-mce-href=””>direct lenders</a>.<strong>What Does The Guarantor Have To Do?</strong>Upon completing an application, the lender will typically send you a <a href=”” data-mce-href=””>pre-contract loan agreement</a> and SECCI (Standard European Consumer Credit Information form) which will highlight the terms of your loan. You and your guarantor will be required to review the terms of the loan, including the loan drawdown, fees, repayment dates and responsibilities – and this can be signed via an online verification process using your email and mobile phone.The lender will usually carry out an individual phone call with you and your guarantor to ensure that you both understand the responsibilities and what is required of you – notably that if you cannot make repayment, your guarantor will be required to pay on your behalf. Further to some additional credit and affordability checks, funds can typically be transferred within 24 to 48 hours (or sometimes on the same day).<strong>Are Guarantor Loans Available For Bad Credit Customers?</strong>Yes, even if you have a history of adverse credit, <a href=”” data-mce-href=””>CCJs</a>, bankruptcy or IVAs several years ago, you can still be eligible. The idea is that you are using your guarantor and their financial history to ‘back you up’ and give your loan extra security. However, it is noted that your guarantor should have a good credit score and consent to co-signing your loan agreement.<strong>How Soon Can I Receive Funds?</strong>Guarantor Loans works with lenders that can facilitate funds within 24 to 48 hours of approval, or sometimes on the same day.When your funds are successfully transferred, most lenders working with Guarantor Loans will send the full amount to the guarantor’s debit account first. This is a standard security measure carried out by lenders to ensure that the funds are going to the right person and confirms the involvement of the guarantor. The guarantor usually has a ‘two week cooling off period’ where they can decide to pass on the money to the main borrower or they can change their mind and return the funds with no extra charges.