Similar to Dave Ramseys snowball effect, a debt ladder is the same concept, and whether youve heard about it, or you want to create one, but you dont know how, lets take a look at how it is done. By following the steps below, you will find that it is quite easy to create a debt ladder that will help you get out of debt in an organized fashion.
Step 1: You will first want to gather up all your statements that have your details on it such as what you owe, what your minimum payments are, as well as your interest rate. This first step is going to allow you to gather up your debts to become organized.
Step 2: With the next step, youre going to want to take your debts, and order them by the lowest debt at the top, and continue to write your debts from lowest to higher. This is going to become your debt ladder.
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For example, it may look something such as this:
- Debt 1: $349
- Debt 2: $844
- Debt 3: $2,392
- Debt 4: $4,599
Step 3: Youre going to want to prepare to pay the minimum on every account, no questions asked. This is going to keep your accounts in good standing, as well as keep your credit score higher. If you miss one payment, you will find that not only will your score drop significantly, it will result in many numerous calls if you miss many payments.
Step 4: With our example above, you will want to pay the minimum on 2, 3 and 4. With #1, you will want to pay as much as you can toward that debt. So if you had $1,000 to pay off bills, you would put the minimum of whatever toward 2, 3 and 4, while applying the additional to the #1. Once #1 is paid off, #2 will then become #1 and so forth.
Free up money, and continue the process. While Dave Ramsey recommends that you pay off the highest interest rate first, this is more of a psychological effect, as it will feel as if you have less bills. Many people prefer this route as they find that it does help them with attacking debt. Have you used a debt ladder before?
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