A debt reduction calculator is the perfect tool to assist you in prioritizing which debts to pay off first. Once you have your list of debts prioritized, you'll be ready to attack the list.
Not all debt reduction plans are effective. Most folks who are deeply in debt have numerous credit accounts open, most of which are carrying balance close to, if not well over, the credit limits.
Every month it becomes a constant worry over how to distribute the limited amount of cash available among all your credit accounts. You can now eliminate that worry by taking some specific action!
When using a debt reduction calculator you can run multiple scenarios on how you want to strategically pay off your debt.
One very effective method is known as "Debt Stacking". It is also known as "The Debt Snowball". The idea of the debt snowball strategy is simple. First you list your debts in the order that you want to pay them off. Once the first debt is paid in full, you then apply that payment to the next debt, which enables you to pay the 2nd debt off more quickly.
Next, once the 2nd debt is paid off you again take the total payment and begin applying it to the 3rd debt, and so on, until all of your debts are paid in full.
This is a highly effective way to attack your debt!
A good debt reduction calculator will save you hours of planning time, and quite possibly tens of thousands of dollars in interest payments over the duration of your debt reduction plan.
The best part about using the debt stacker strategy is that you will most likely pay off all your debt in 1/2 the time it would have taken otherwise!
When you begin the process of debt stacking, you must choose how you want to priortize your debts.
The two most common ways of listing your debts are by:
- Highest Interest Rate First
- Lowest Balance First
Hightest Interest Rate First: This strategy results in the lowest total interest charged on your outstanding balances, but depending on the balance of your higher interest loans, it may take you longer to see your first loan/debt completely paid off. If the difference in the total interest is not significant, than you will see faster results (and experience greater motivation) from the Lowest Balance First method.
Lowest Balance First: This strategy provides the benefit of the snowball effect more quickly because the first debts are the smallest. However, most likely you will pay more total interest in the end. The main benefit of this approach is the psychological impact of seeing the number of debts diminish more rapidly. The feeling of accomplishment will help to motivate you to continue the process.
My personal opinion is that you should stack your debts according to lowest balance first. Yes, you might end up paying a little bit more in interest, but that is a small price to pay for gaining the benefit of paying off your first credit account more quickly.
The sense of accomplishment you experience will most certainly motivate you to continue your debt to income journey.
If you do a quick Google search for a debt reduction calculator you will find many resources available. Some will cost you money, others won't.
The best debt free solution I have found, and the one I wholeheartedly recommend, can be downloaded at no cost!
Plan for Aggressive Debt Reduction - Download this FREE Debt Reduction Calculator from Vertex42.com.
If you know the basics of how to get around with Excel spreadsheets, the above download will be very easy for you to use. Just be sure to take some time upfront to read the help text along the way.
For "non-spreadsheet" users, take the same principles discussed here and make your debt stacker list. Then, use our very own Roll-Down Debt Reduction Calculator to plan your future payments.
No matter what tool you use, or how you decided to prioritize your debts, the main point is that you adopt a strategy that you are comfortable with. The very fact that you "have a plan" is critical to reducing debt and your future financial success.
Hopefully by now you are beginning to feel the true power that comes from implementing the debt managements tips that have been shared.
Now that you know how to plan your attack against your credit accounts - you can next begin planning your attack for the remainder of your household expenses in Step Six!
Back to Step Four Go to Step Six
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Debt is NOT your friend. It's not a wonderful "tool" for building wealth. That's a myth.
