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Get to know the snowball method for debt reduction

Debt relief is something you might think is only a pipe dream, but the reality is that anyone can get out of debt. Even if you're hundreds of thousands of dollars beyond your ability to pay, there are solutions for you.

One of the best processes for paying back debt without bankruptcy is called the snowball method. Through this method, you pay off one debt and then add the payment for that debt onto the payment for a second debt. Over time, you learn to live well below your means, and you also pay more on the debts you've accrued.

Here's an example of how the snowball method works

If a person has three debts, one for $10,000, one for $450 and one for $750, the individual will start by looking at the monthly cost of each debt. If the $10,000 bill's minimum payment is $200, the $750 bill's minimum is $50 and the minimum on the $450 bill is $50, the individual has to decide which one is best to pay off first. For some people, the $750 and $450 bills look similar, but if you look at the interest rates, you may be able to do better by paying one off sooner than the other. For instance, the $450 bill with no interest rate can be paid off slowly, but the $750 with a 26 percent interest rate should be paid off as soon as possible.

Most people won't start with the largest bill. Instead, pay off either the $450 or $750 bill, then add the extra $50 per month to the $50 you'd pay on the next bill. Then, add $100 to the $200 payment for the $10,000 bill. This will rapidly reduce the amount of time it takes to pay off the debts.

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