Run...Don't Walk...Away from these offers!

Is zero interest for 18 months REALLY zero interest?  If you can walk a tightrope while juggling flaming torches, then maybe.  But beware — many of these offers are fraught with conditions that will make your head spin.

Best Buy, for example, is currently offering 18 months zero interest on all purchases over $429.  However, the fine print describes the tightrope:

•  You are required to take out a Best Buy credit card.

•  If you are late for a single payment, interest will be charged from the purchase date.

•  If you do not pay the full amount within 18 months, interest will be charged from the purchase date.

•  The annual percentage rate (APR) for your credit card is variable and based on your creditworthiness.

•  The Reward Zone Program Card has a standard APR of 24.24% – 27.99%; the penalty APR is 29.24% – 29.99%.

Vendors expect you to fail.

According to Dave Ramsey’s Financial Peace University, 88% of buyers who purchase with zero percent interest payments will not keep their end of the agreement.  Vendors who lure you with “same as cash” offers are keenly aware of this statistic; they are literally banking on these failures.  According to the fine print, if you are one hour late on your very last payment for your $500, 18 month contract, you will pay over 29% APR for the entire term – at least a $126 finance charge. Of course, additional fees and penalties could and likely will apply.

 Why cash is king.

Instead of shopping for the best financing offer, why not save up your cash and shop for the best price?  The very act of saving money will help you develop the character traits of patience, delayed gratification and solid money management.  Once you have that cash, you will have:

•  Negotiating power.  With those five Ben Franklins in hand, you will be able to make some deals.  Sellers listen to the rustle of money.

•  Time to shop.  You have learned patience by saving up for your purchase.  Use that patience to do plenty of looking before buying.  By taking your time, you will find a great deal.

•  Time to change your mind.  It is very possible that by the time you save the money for your purchase, you will no longer be so hyped up about buying it.  If you go ahead with the purchase, do so with no regrets.  However, because you are keenly aware of what was required to save that money, you may opt not to buy.  Either way, the time factor works to your favor.

•  Zero risk.  No one who is deeply in debt started out with a plan to get there, but they nevertheless arrived.  When you buy on time, even with no interest, you are always inviting the unexpected to happen.  Those who save and buy with cash never, ever end up in debt.

 Is 18 months same as cash?  Hypothetically, it could be.  Practically, it seldom is.  It certainly isn’t worth the risk.

The prudent shopper will take his time, save his money and make a wise purchase.  I hope that is you.

Readers: what experiences (good or bad) have you had with “same as cash” purchases?

Even with all the advice here at Personal Finance By The Book, you still managed to overspend this holiday season.

It’s not that surprising; one-in-three Americans put their holiday on credit cards. Many more used loans, credit lines, and same-as-cash deals to pay for the big day. And with presents, eating out, travel, and increased utilities (your mother-in-law needs to take shorter showers) you’ve found yourself up to your eyeballs in bills.

But fear not! There is still a way to enjoy 2012 without paying Christmas debt for the next 6 months.

Using these three methods to make some extra cash this year and get out of the mess left from the holidays.

Sell Unused Stuff

January is a good time to get rid of all the junk you’ve built up in recent years.

Even the most frugal among us has useless junk lying around their house. You are not the exception. Maybe it’s a shirt you never wear, a lamp you never use, or plates that have been collecting dust for years. Whatever it is, you need to find all that stuff, set is aside, and sell it.

There are plenty of ways to make money. You can:

• Sell things on consignment. Consignment selling is a great way to keep your stuff local and make a little cash.
• Get it on eBay. For all the hate eBay gets, there are still millions of users buying things from it every day. Put your stuff on eBay and make a little bit of money. Amazon is another great way to sell stuff, but it usually takes longer.
• Use Craigslist. Like consignment, Craigslist is a great way to sell your stuff locally. Just set your price, post your ad, and wait for emails. You may have to deal with some hagglers, but you’ll probably sell it at a great price.

If you’re having trouble getting rid of things, use the four-seasons method to decipher what’s useful and what’s “stuck”. All you have to do is ask yourself:

“Have I used this in the past 12 months?”

If the answer is “no” then you should sell it. Going all four seasons without using something means you likely won’t ever use it – no matter what you tell yourself.

The only exception to the four-seasons method is truly meaningful stuff. This doesn’t mean you save things you might use someday; it means you save things that have meaning (like pictures, heir looms, etc).

A Part-Time Job

You should have seen this one coming.

The best way to make a little extra cash is to get a part-time job. Minimum wage is over 7 dollars an hour and with 25-30 hours you can make enough money to get that Christmas debt paid off. If you get a job that includes tips (pizza delivery, waiting tables, etc) you can get it paid off even sooner!

Someone may say, “You can’t get a part-time job after Christmas! Spending has slowed down.” And while it’s true spending has diminished, it hasn’t stopped. That’s like saying, “You can’t eat after thanksgiving, everyone is full!” And while they may eat less the next day, they will still eat something.

In the same way, people are still buying things after Christmas – just less than they were in December when (like you) they were over-spending.

Cut Spending

Since you refused to cut spending in December, you’re going to have to do it now.

Instead of eating out, stay home in January. When you’re friends want to see a movie, invite them over for a $1 red box viewing. And when you’re ready for a date night, hit up the free-night at your local art museum.

There are millions of ways to save money without ruining your life. Take a look at where your money is going and resolve to slow down in January. This not only frees up cash to pay debt with, but also forces you to change the way you think about spending and saving in the New Year. The creative ideas I’ve seen people come up with when they couldn’t spend money have brought together families, reignited romances, and built relationships.

It’s tough, it’s not as fun (at first), but it’s worth it.

Start Today

You’ve made resolutions, now set some goals. Starting today, look over your budget and find a few things to cut. Then go around your house and pick two or three things to sell. Once you’re finished, list out a few places you can apply at a part-time job.

In no time, you’ll work your way out of Christmas debt and be able to start the year off right.

Aren’t we all looking for the freedom to enjoy the year without the stress of last year following us?

Alex Humphrey is a personal finance writer and coach at EntrepreLife a personal finance blog that teaches easy ways to dominate money by dropping debt, investing well, and saving for the things you love to do. When he’s not blogging he leads a youth group, spends time with his wife, and figures out new ways to teach people personal finances. You can follow him on Twitter and Facebook and subscribe to the EntrepreLife mailing list.

You CAN erase that debt!

How do you feel when your bills pile up on you?  Overwhelmed?  Out of control?  Hopeless?  Even when you start making progress, do you run out of steam?   Is “getting started” something that you continually postpone?

Yes, debt bondage can be overwhelming, but setting a time goal will help you take control of your debt.  Believe me: you can do it.    Furthermore, once you get started, you will gain momentum instead of running out of steam.

How do you set a time goal?  Follow these five steps: 

 1. Make a Cash Flow Plan

Yes, that budget is absolutely essential.  You must know where your money is going before you can even think about setting a time goal.  If your budgeting experience in the past has been less than stellar,  read Five Budgeting Pitfalls to Avoid.  You can do this.  Get started.

2. Calculate how long you will be in debt if you keep doing what you are doing.

Stick with me here … it’s not all that hard.  Let’s say this is your situation:

You owe $5,000 in credit card debt.  Payments are $100 a month at 12% interest.

You owe $11,000 on your Honda.  Payments are $480 a month at 7.5%  interest.

You owe $20,000 on your Ford.  Payments are $470 a month at 8% interest.

At this rate, the Honda will be paid for in 25 months, the Ford in 50 months and your credit card in 70 months.  But you will actually get out of debt earlier than 70 months (unless you get car fever) because once your Honda is paid off you will use that payment on other debt.  Right?  In 25 months you will owe $10,900 on your Ford, and $3600 in your credit card, so you add the $480 you were paying on the Honda to the $100 credit card payment and it will be gone in 7 more months.  Still with me?  Now you add the $580 to the $470 Ford payment (you will owe $8,000 at that time) and you will be debt free in 8 more months: a total of 25 months + 7 months + 8 months = 40 months.

 3. Set your time goal.

Most people, if they aren’t OK with the 40 month timeline, will look first at ways to cut the budget.  That is not a bad idea, but I want to challenge you to first set a time goal and then figure out how to accomplish it.   Why does setting the time goal work better than examining your budget?  Because doing so will kindle creativity whereas looking at your budget stifles creativity. I recommend trying for a time goal of two years or less.  Why?  Because the 24 month time period, psychologically, is “doable”.   Any time frame over the 24 months may become so distant that you might lose hope.  Did you feel that way when you read “40 months” in the previous paragraph?  See what I mean?

4.  Figure what you need to do to accomplish the time goal.

Obviously, you are going to need to make bigger payments to get rid of the debt quicker.  But how much will it take to do it in 24 months?

In this case, I did the math for you: you will need an additional  $600 a month.   Did your eyes pop out?  Don’t despair.  Now is the time to do what we said we were going to do: think outside the box.

 5. Time to get creative.  These tips will help you find that $600 a month:

• Scrutinize your budget

How much are you spending on eating out?  Going to movies?  Christmas gifts?  This is where you learn just how badly you want to get out of debt.  Can’t find an additional $600?  How much did you find?  $300?  OK, we still need another $300.  Read on.

•  Check your tax refund.

How much refund did you get this year?  What did you do with it?  If your answer is that you got $4000 and you don’t know what you did with it, you have just found your additional $300 a month.  Change that W-4 and start bringing home your money instead of loaning it to your Uncle Sam.  But if that won’t work, read on.

• Use your “extra” paychecks. 

If you get paid every two weeks, you are getting three paychecks every sixth month.  If you are paid every week, you are receiving five checks every third month.  What do you do with those extra checks?  If you don’t know, now you do: apply them to debt.  Those extra checks equate to an entire month’s take home pay every year.  If, for example, you normally bring home $2400 every month, you just found an additional  $200 a month to use on your debt.

• Extra job.

An extra job, just for the 24 month period, could easily bring in the $600 you need.  In fact, once you start that extra job and apply every penny of it to debt, you will probably get out of debt in less than your 24 month goal.

•  Sell one vehicle. 

If you were to sell the Ford for $20,000 and buy a $3,000 car, you have just reduced your debt from $36,000 to $19,000.  Continue paying the $1050 a month you are paying now and you will be out of debt in only 20 months.

•  Work overtime

Do you have overtime opportunities?  Take them!  Every penny going against your debt will help you toward that 24 month goal.

•  Cash out your whole life policy.

Do you have any cash value in your whole life policy?  If so, consider replacing your whole life with a term policy.  I recommend talking to a financial counselor before making this decision, but if term life is right for you, use that cash from your whole life to reduce your debt.  A bonus: you could also apply the savings in your monthly premiums to your debt.

•  Tap your savings. 

How much do you have in savings?  I bet it isn’t earning nearly as much interest as you are paying on your debt.  Don’t use it all; you need a small emergency fund.  But if you have $10,000 in a savings account, you could use $8,000 immediately on debt (pay the credit card off first) and you have reduced your total debt to $28,000.

 Conclusion

Getting out of debt requires sacrifice; it is never easy.  However, if you can set a time goal and make up your mind that you are going to do whatever it takes to achieve that goal, you will do it.

 The key is to get started.  Today is a good day.  Go for it!

I read a fascinating article the other day from the Discovery Channel’s How Stuff Works website.  The article shared strategies for surviving adrift in the ocean.  While I don’t ever plan on being stranded in the ocean (who does, right?) it was still a captivating read.  I’ve never been a fan of the open waters and hearing about people becoming a part of the food chain has kept me away from deep-sea adventures.

The article gave three good survival tips for staying in one piece (literally) if you’re ever stranded out in sea.  I couldn’t help but modify the tips for an article about debt, because it’s just as scary (well, maybe a little less scary than a shark attack, but it’s still painful.)

Gather every drop of water that you can.

Medical experts agree that a person can live without food from four to eight weeks as long as they have water.  Two months is a long time to go without food, and to think that plain old water could sustain you for such a long time is incredible.

If you’re in debt, every dollar that you can earn with an extra side job, or dollar you save with coupons or tax rebates can help you reach your goal that much faster.  If you were stranded out at sea, you would fashion a rain trap to catch as much rain as possible and keep it from being wasted.  When you’re stuck in a sea of debt, handling your dollars like you would rainwater is crucial.  Make it easier for you to pay down debt by automating bills, selling unused things around the house and getting creative with earning extra cash.

Don’t leave home without your life raft.

Most life rafts come with good survival tools like flashlights, flares, signaling mirrors, fishing kits and paddles.  I can think of one life raft that you need when it comes to paying down debt: your emergency fund.  If you’re not serious about an emergency fund, you need to be.  For starters, a $1,000 fund is fantastic.  It helps you to cover those unexpected car breakdowns, emergency doctor visits or inconvenient water heater problems.  You’ll feel so much more prepared to tackle your debt when you have an emergency fund in place.  If you already have it, great!  Hopefully you’ll never need it (just like a life raft) but if you do, you’ll be glad you built it up!

Don’t lose your heat.

One of the fastest killers on the open sea (besides a shark attack) is dying from hypothermia.  Most waters are really cold, so your body will lose its heat quickly if you don’t get dry or take other measures.  If you’re in the water, you’ll want to pull your legs close to your body to avoid losing your heat.

When you’re paying down your debt, it can be easy to lose motivation and get discouraged.  Stay motivated by asking your family to encourage each other to be frugal.  Make saving money a game and a family event.  Create a physical chart to track your savings goal for the month and put it in the open for everyone to see.  Sometimes these little nudges can help us not to lose steam when paying down debt.

Are you desperately trying to swim out of a sea of debt?  What survival tip would you add to these?

Tim is a personal finance writer at Faith and Finance a Christian financial help blog that provides financial insights for individuals, businesses, and churches. Outside of finance, Tim enjoys spending time with his wife, playing the saxophone, reading economics books, and a good game of RISK or Catan. Find him on Twitter and Facebook and subscribe to the Faith and Finance RSS feed.

I can’t tell you how many times I’ve heard the words debt and deficit thrown around on the news this year.  It seems like every time I turned on the TV or read an economic article, people would make it a point to talk about our nation’s debt and the budget deficits.  But what’s interesting is that I rarely see anything that explains the difference between the two and how they’re related.

How the word DEBT affects you.

The United States is in debt to the tune of $14.5 trillion, and most of it is owed to people who bought Treasury bills, notes, and bonds.  Those are government issued securities which are sold to investors (like you and me or foreign countries).  The rest of the debt is actually owed to the Government itself.  You heard correctly – the Government owes itself money because it has borrowed from other areas like Social Security and other trust funds.

The debt is huge and the interest owed is even more shocking.  In 2010, the interest alone was $414 billion and was the fifth largest expenditure for the government.  That’s $1.3 billion dollars a day in interest.  The issue is obvious – the more debt there is, the harder it will be to come out from under it.  The US debt affects all of us because it has grown so large and has tapped into other trust funds like Social Security.

What the word DEFICIT means for the DEBT

Put simply, a deficit happens when you spend more than you earn.  It happens with individuals, businesses, states, and national governments.  Every year that a government runs a deficit, it adds to the total amount of debt – you know, that $14.5 trillion we mentioned earlier.

While you wouldn’t spend more than you earn (at least I hope you wouldn’t…) the government actually doesn’t mind (groundbreaking, right).  The reason behind this thought is that many economists think that government can stimulate economies by running deficits.  The problem, as you’re probably aware, is that in order to correct a deficit, you need to decrease spending or increase income – yes raise taxes.

It’s Just Simple Math…

Ok, I know the economy is complex, but the basic concepts are simple.  Don’t spend more than you can bring in.  Why is that so hard to implement?  Because people are used to it.  We’re used to having debt in our own lives and we’re used to the government spending more than it brings in.

Unfortunately, we can’t control the trillion-dollar wallet of the government, but we can control our own wallets.  We can run deficits on a personal level and build our own debt if we don’t put spending in its place or satisfy it with extra income through side jobs.

If you weren’t sure how the terms debt and deficit were related, I hope this helps you to put it into perspective.

If you were familiar with the terms already, my question to you is this: How do you feel about the U.S. debt and ongoing budget deficits?  Do they worry you, or do you think it’ll work itself out in the end?

Tim is a personal finance writer at Faith and Finance a Christian financial help blog that provides financial insights for individuals, businesses, and churches. Outside of finance, Tim enjoys spending time with his wife, playing the saxophone, reading economics books, and a good game of RISK or Catan. Find him on Twitter and Facebook and subscribe to the Faith and Finance RSS feed.

This year will be different for Fred and Angela

Fred and Angela have always loved Christmas, especially shopping for their kids and grandkids … unbridled shopping, as in thousands of dollars shopping. The problem is that Fred and Angela do not have thousands of dollars to spend on Christmas. To the contrary, they have tens of thousands of dollars in credit card debt, car debt and miscellaneous debt. But Christmas 2011 is going to be different for this couple. Instead of piling up more debt, they have drawn the line in the sand and are focused on paying down their debt.

Christmas is a huge obstacle for many couples who, in spite of their intentions for getting out of debt, simply don’t have the resolve to stop the overspending at Christmas time. This annual buying binge is more sinister than a simple one time blunder … like alcoholics who have gone off the wagon, they feel so defeated that they lose hope in ever conquering their debt demons. Fred and Angela used to be that way, but this year they are “having the talk” with their family. I will come back to the talk in a moment, but first some prerequisites for that talk:

They have a goal.

For Fred and Angela, the goal was simple: get rid of this debt. They both realized that unless they took action, the debt would stick with them the rest of their lives.

They have a plan.

These two have created a cash flow plan whereby they can realistically get rid of all of this debt in three years. Yes, it will take sacrifice, but they are excited about seeing the light at the end of the tunnel.

They are in agreement.

Fred and Angela totally concur on their goal and their plan. Both realize that it will take tremendous teamwork, but they are discovering that joining forces against this common enemy is strengthening their marriage bond.

Having the talk.

Our couple plans to explain to their family that getting out of debt is a higher priority than an extravagant Christmas. The good news is that this will be a win-win talk. Why? Because Fred and Angela are not only staking their debt free claim, but also because their family, who is fully aware of how important Christmas is to these two, might just be motivated to better manage their own money.

Readers:  Have you, or anyone in your family, ever initiated “the talk”?   Do you or anyone in your family need to?

Note:  this post was included in the “Best of Money Carnival #124″ hosted by Squirrelers.

Vendors offer “easy monthly payments” to lure buyers into purchases they should probably be avoiding. The problem is that these easy payments do not make your life easier; they are actually a recipe for a lifetime of debt.

Here is why:

You will pay more.

If you purchase a $20,000 car at 8% interest for 7 years, your “easy“ monthly payments will only be $311.72 compared to $626.73 for a three year note. Those lower payments sound tempting until you realize you are paying an extra $3,622 interest for that option. Remember: “easy” has a price tag.

You will take on more debt.

Once you start down the easy payment path, you will rationalize buying more stuff you shouldn’t be buying. Using the car loan example above, if you are paying $315 less per month, you will be tempted to go buy that furniture set. After all, it is “only” $300 a month.

You will stay in debt longer.

Lower payments mean a longer term, so when you agree to those low monthly payments, you are actually saying, “I plan to stay in debt a long, long time.”

You might get addicted.

Once you start agreeing to those low monthly payments, it will be easier and easier to take on more monthly payments. You are slowly being sucked into a vortex of debt which steals your joy, your energy and your hope.

“OK Joe, what am I supposed to do?” Great question. If you want different results, do the opposite of what you are doing now. Purge “easy monthly payment” from your vocabulary and attack your debt with sacrificially huge payments. After all, your goal is to get rid of the debt…not stretch it out. List those debts on a piece of paper, tape the paper to your fridge, draw a red line through each one as it disappears, and celebrate its demise.

Take a moment to imagine the freedom of having zero debt. Savor that feeling and go for it. You will never look back.

Readers: Have you ever fallen prey to easy monthly payments? If so, how did it happen? How is your debt battle going today?

Are payday loans, pawn shops or other exotic loans against your assets a good way to get some short term money?  If you haven’t fared too well in the angry economy of late, you may be turning to loans to tide you over.  Here are three that have become more popular and why you should just say no.

Payday loans

Payday loans are so bad that federal and state governments have tried numerous times to effectively put them out of business. So far it hasn’t worked and that’s probably because when times are tough, people will go anywhere to get money. If you can avoid payday loans, do it. The reason is because these lenders know what kind of customer is walking through their doors. Ask yourself this: Why do you almost never see payday loan centers in wealthy areas?

They know that people who walk through their doors are desperate and willing to do just about anything to get a few hundred dollars. This is why you may walk out with your loan and an interest rate of  300% !  Furthermore, because a high percentage of people roll the loan over (borrow against what they can’t repay),  they end up paying interest on the interest.  Don’t let this be you!

Pawn Shop

According to pawn shop owners, because more than 20% of North Americans don’t use traditional banks, pawn shops fill the needs of short term loans for this clientele.  By taking an item of value to a pawn shop and giving it to them as collateral, you can expect to receive about 50% of the value of the item as a cash loan. If you don’t pay the loan back within the contracted period, the pawn shop keeps your item and sells it for a profit.  The fact that 70% to 80% of all items are picked up makes these loans seem fairly innocuous, but reality is that the interest rate on these loans is 15% to 20%.  Therefore, you — the borrower — put yourself in a no win position when borrowing from pawn shops.  At best, you will pay 15% to 20% on the loan; at worst you will be giving up your pawned item at 50% or less of the value.   The best way to avoid this no win situation is to never walk through the front door.

Stock based Loans

Bad loans aren’t reserved for the lower income earners. A stock based loan is a loan against a stock purchase and, as you could imagine, there are a multitude of different products available based on this model. First, you may get the loan based on the value of stock purchase in your portfolio. The lending institution may take the current value of your stock positions and give you a loan based on that amount. The loan may be for as much as 90% of the value of the current value of the stock you own.

Other products loan you money against your current stock position so you can purchase other investment products. Often these loans come from third party unregistered lenders and offered by financial advisors, insurance sales associates, banks, and other commission based professionals.

Why should you stay away? First, the interest rate on these loans is often 10% or more. Other loans offer much better rates than these products. Second, ask yourself how financially responsible it is to borrow money to purchase another investment product that could lose a significant amount of value if not all of its value. For most investors, borrowing money to invest is a bad idea that can lead to financial disaster.

Also remember that during the life of the loan, the lender has all rights to your stock. According to the Financial Industry Regulating Authority, or FINRA (who issued an alert on stock based loans),often the lender sells the stock immediately upon acceptance which could cause tax consequences for you along with the loss of any appreciation of the stock. To be fair, we’ve labeled the top two products as catering to the low economic class but this loan caters to the middle and upper class as a general rule. This loan is proof that all people, regardless of their level of education and financial status sometimes make damaging financial decisions.

Bottom Line

You may be reading and thinking, “it’s easy to say that we should steer clear of these loans but when you need money, you need money.” That is a fair point, but I challenge you to change your mindset.  Get creative and explore options other than debt.  Could you do odd jobs for a family or friend?  How about a part time job or volunteering for extra work in your current job?  What could you sell to raise the needed money?  Have you considered a temp agency?

Statistics show that once you start down the road of short term loans, things tend to get worse. One payday loan leads to another and many people who pawn their valuables tend to be repeat customers. 80% of those who participate in short term stock market trading lose money. Try to break the cycle.  Best of luck to you!

Readers: have you used any of these types of loans?  How did they work for you?  Any other tips on how to avoid debt?

Creating a debt snowball is a great way to reduce your debt, but not all snowballs work the same way. As you read about these, ask yourself, “Which one is best for me?”

The behavioral snowball

This system (paying debts from smallest to largest) provides quick victories by paying off small debts first – victories which inspire the user to pay off even more debt. As debt diminishes, enthusiasm increases … thus the term “behavioral” snowball. Here is how it works:

1. List all of your debts from smallest to largest.
2. Make minimum payments on all of the debts except the smallest.
3. Pay all you can on the smallest debt.
4. Once you experience the victory of getting that smallest one out of your life, roll what you were paying on that one into the next smallest, and continue paying minimum payments on the rest. Your debt snowball is now rolling.
5. Continue this process until all debts are gone.

The mathematical snowball

This technique (paying debts from highest interest rate to smallest) is mathematically the most efficient way to reduce debt. Those who are motivated by getting rid of those high interest debts will benefit from this technique. It works like this:

1. Tabulate all of your debts by interest rate — from highest to lowest.
2. Make minimum payments on all debts except the one with the highest interest.
3. Pay all you can on the highest interest debt.
4. Once it is gone, roll that payment into the next highest interest rate and continue making minimum payments on all other debts.
5. Continue this process until you are debt free.

The hybrid snowball

As the name suggests, a hybrid snowball combines the behavioral and the mathematical snowballs. Your goal is to maintain the enthusiasm of getting out of debt while being wise about those high interest loans. As you may suspect, the hybrid is highly personalized; you design it to fit your circumstances.  It should work something like this:

1. Make two lists of your debts: smallest to largest and highest interest rate to lowest.
2. From these two lists, make a new list, placing highest priority debts at the top and lowest at the bottom.
3. As with the first two options, make minimum payments on all debts except the one at the top of the list. Attack it with vigor until it is gone, then move on to the next one.

Some thoughts about the hybrid snowball:

• If you have small debts (those which can be paid off in a few months), I strongly recommend you put them at the top of your list. You need that psychological boost of knowing you can get some of these creditors out of your life forever.

• Be in touch with your emotions. What do I mean by that? If, when examining the list, certain debts REALLY push your hot button (like that “12 month same as cash” television which will cost you a fortune in back charges and interest if you don’t pay it off in the next two months),  move that item up on the list and use that anxiety as a motivator to pay it off.

• Run the numbers. Yes, this involves some nerdy math skills, but, if the shoe fits, go ahead and run the numbers on different scenarios. Knowing just how much you can save by jumping a higher interest debt up in the order could help you better plan your attack.

• Stay flexible. This is YOUR plan. If you find yourself getting bogged down on a higher interest debt, consider switching to a smaller one to regain your momentum.

Word to the wise: Do not start any snowball until you have done the following:

Create a budget.

I can’t emphasize this enough. If you think you can get out of debt without using a budget, you are fooling yourself. Your budget is your friend; it will not only tell you where your money is going; it will also tell you how much of your money you can use toward debt reduction. Whatever snowball you choose, it won’t roll without a budget pushing it.

Set a time goal.

A time goal moves a snowball from theory to reality. If, based on your budget, you can project being debt free in 24 months, you will be more apt to stick with it. Put a 24 month calendar on your refrigerator and mark a red X through each month as a countdown to freedom.

Work together.

If you are married, working as a team is absolutely essential. One highly motivated spouse trying to control an “I don’t care” spouse is a formula for frustration and defeat. If you are the highly motivated one, you might want to take some “patience pills” until your less than motivated spouse is ready to partner with you in attacking the debt.

Stay angry.

I hope you are angry…very angry…at this debt. Visualize it as a satanic enemy trying to rob you of your joy, your freedom and your future. Personalize your enemy. Tell him, “You’re going down!” Weird?  Perhaps.  Effective?  You bet.  Learn his tricks and his tactics, for when you know your enemy, you will be more apt to defeat him.

Which snowball is best … and worst?
I titled this post “Which debt snowball is best for you?” Hopefully, my explanations have helped you understand how each works. Is one best? Yes. The one which works for you. The worst one is the one you never try. Don’t let that happen.

Now: get that snowball rolling!

Readers: Have you used one of these snowballs … or one I didn’t mention?  How did it work?  Any additional tips?

Debt can be a terrifying, debilitating and even overpowering. You feel like you can’t fight off the anxiety and feeling of entrapment, and, as the unpaid bills and statements pile up, you have difficulty thinking straight. You feel cornered and know you must act soon, but you also don’t feel like you have many options.

Take a deep breath. There are a lot of options for you to get out of debt and not just filing for bankruptcy (although this still can be a good action for extreme cases). The biggest step you can take is getting your mind out of this mental and psychological slump and start considering the many proactive options available to help your debt situation.

Cut any unnecessary expenses or luxuries

If you are having trouble gathering enough money to pay off bills or interest, start making your own coffee and lunch and bring it to work. Cancel any monthly-fee membership (if there’s no huge cancelation fee) and any other service that you don’t need. Try home repairs. Fire the cleaning lady. If you are paying for anything that doesn’t help you get out of debt, cut those expenses immediately.

Create a Small Business Startup

Sure, all business require some sort of initial deposit for startup, but there are a lot of very low cost startups out there. If you have any secret skills or hobbies, maybe now is the time to step into the ring and give it a shot. Create a website; they’re cheap! You could even write a blog about your struggles with debt; yes people do make money from blogs.

Consider Balance Liquidation Plans

If you have multiple credit cards with intimidating interest rates, consider requesting balance liquidation plans from your creditors. These plans, which are designed for “hardship” customers, will set up a five year pay off schedule with greatly reduced interest rates (often 5% or even lower). Your credit card will be voided, but that is probably advantageous for those seeking to escape debt.

Force Budget with Cash

If you decide to liquidate your cards, forcing a budget with cash would be a great followup. Budgeting with cash works wonderfully because it literally doesn’t allow you to overspend. Essentially, you withdraw a set amount of cash each week (or month), and don’t allow yourself to withdraw any more or spend in any other way. If you get low on cash, start looking for food in the freezer and try to cut back on your driving.

Organize your Budget with Envelopes

If you are already force-budgeting with cash, try organizing separate budgets into different envelopes. Have an envelope for clothes, bills, groceries, and whatever else with a designated amount of money in each envelope. If you find that one envelope empties really quickly, you have identified a potential spending problem in your budgets.

Readers: What is your favorite proactive tip for getting out of debt?

Author Bio:  Stella Walker is a freelance writer of free credit score where she writes about topics including credit, debt, investment, bankruptcy.