Debt Snowball for Businesses: Downhill Debt Relief
Have you ever seen those cartoons where the character is skiing and falls, starting a head over ski tumble down a snowy hill? After a short while, the character is covered in snow, and as they continue to roll downhill, the more they start to look like a giant snowball, rolling faster and faster. Eventually, the snowball is so large that once it hits the bottom of the hill its large enough to take out cars.
Now, image your small business debt is a large snow ball. What does that mean?
Well, here, continue reading if you want to know more.
Getting the Ball Rolling
The debt snowball begins when you sit down at your desk with a list of all of your current debt. This list should include the amount of each monthly payment and the interest rate. List each debt starting with the one that has the highest interest rate, but smallest balance (like that credit card with the 13% interest rate and the $1000 balance). Set this list aside and pull out your monthly budget. This budget should include ALL of your income, ALL of your monthly expenses (credit card payments, rent, mortgage, gas, heating, cooling, electricity, office supplies, projected payroll (always over project), and projected inventory costs (always over project)). Once you have the budget all mapped out, look for areas in your budget where you can squeak out a few extra dollars each month. If that means buying the cheaper cleaning supplies, or stocking less of a product that doesn’t do as well, then you should do it. With the money you save, you can pay more money onto the debt with the higher interest rate. That means that the extra $150 you put aside each month can be added to your monthly payment of $130, and that $150 will go straight to the balance.
Understandably, that $150 doesn’t look like much when you owe thousands of dollars, but after six to eight months of paying EXTRA to the balance, your finance charges will begin to drop, which means that your monthly payment will drop. NO! Do not give into the temptation to start paying less because the debt bill has decreased…that’s the point of the snowball…keep paying the same or more until that debt is paid off.
Now, once that debt has been paid off, you take the money you would have paid on that debt and add it to the balance of the next largest balance with a monthly payment of $220. Now, the snowball is getting larger because you’ve essentially freed up $280 to pay on your next largest debt on top of the regular balance. Once that debt is paid off, you essentially have $500 to pay onto the next largest debt balance…and so the snowball keeps growing until you reach the very last and largest balance on your debt list, but now you have thousands of dollars of “extra” money to put onto the balance each month.
Eventually, you will be debt free.
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