Finance Roll

What is your Life Plan? Do you have a plan? I don't believe the majority of Americans ever planned to hand over their financial destiny to the great credit monster. I do believe that we have failed to plan. We have found ourselves locked behind the bars of this financial prison. The biggest downfall to financial crisis is living beyond our means. This is an old concept if you live a champagne lifestyle on a beer budget something has to give. This is simple, when we spend more than we have our financial bucket is empty and we don't have a bottomless well to fill the bucket. When we overspend, we go in debt.

Possibly the largest hurdle on your way to becoming financially free is your behavior. Our behavior is guided by our money personalities, which are handed down to us from generation to generation. How we handle our money is a state of mind, which we now know that 80% of financial transactions are based on behavior not head knowledge. In order to finish this race you are going to have to embrace change. You see if you are heading toward a financial crisis, change is inevitable. Either you continue down the road to your financial crisis or you can begin the path to financial freedom. The truth is the average American family has an annual income of $40, 816 with the average family debt of $38,000. Over 55% of us worry about money and 70% of working Americans are living paycheck to paycheck. It has become more important to Americans to look good rather than face the reality of not having the income to keep up status quo. The way we approach our adult life is to spend the first five years of our careers trying to obtain the status that our parents took thirty-five years to acquire.

Our whole attitude toward credit has changed in just a few short years. Our grandparents thought debt was dumb and paid cash for everything. Our parents thought a little debt was OK with the onset of home mortgages and revolving credit. In 1970 only 15% of Americans had a credit card. In our generation debt and living beyond our means has become the norm.

The most popular debt management method that emerged is called the Debt Snowball Method. The road to your financial freedom is not an easy one and will take time. Working through your debt will take patience. This is a process that works every time. It doesn't matter how long it takes. When you follow the plan you can cross the finish line. Winning is what this is all about and you do win by following the basic principles in the debt snowball.

The steps to the debt snowball are very basic in fact; so simple you may shake your head in disbelief. However as I mentioned earlier it won't be an easy road. Here is how the debt snowball works. Pay minimum payments on all but the debt with the lowest balance. Make a higher payment on that debt until its paid, and then start paying down the next debt with the lowest balance. This method begins the process of getting the debt down to a manageable level. It actually gets the debt paid down pretty quickly if you use it correctly. Think of the debt snowball as just that, you list all your debts in ascending order from smallest balance to largest.

Here is the debt snowball process:

List your debts in ascending order from the lowest to the highest.

• Commit to pay the minimum payment on every debt.
• Determine how much extra can be applied towards the smallest debt.
• Pay the minimum payment plus the extra amount towards that smallest debt until it is paid off.
• Then, add the old minimum payment from the first debt to the extra amount, and apply the new sum to the second smallest debt.
• Repeat until all debts are paid in full.

As you begin to pay off your debts from smallest to largest you gain momentum by seeing results. The results are an encouragement to continue paying on the snowball as the momentum builds. In theory, by the time the final debts are reached, the extra amount paid toward the larger debts will grow quickly, similar to a snowball rolling downhill gathering more snow (thus the name). The theory works as much on human psychology as it does on finance; by paying the smaller bills first, the individual, couple, or family sees fewer incoming payment requests as more bills are paid off, thus giving ongoing positive feedback on their progress towards eliminating their debt.

During the debt snowball process all retirement contributions should be suspended this will free up additional funds to pay down the debt snowball. Some may adjust this plan reducing retirement contributions to only employer matching programs.Your debt snowball usually would not include a first home mortgage but is instead paid off as part of one's larger financial plan.

Following the debt snowball process is a sure fire way to attack your debt prison. Freedom from your creditors is just down the road. I encourage you to take control of your money and begin the path to financial freedom.