It’s everything you owe, except for loans related to the purchase of your home. So, if you borrowed $20,000 over 10 years, your principal payment would be about $167 per month. We’re talking about the amount of money you borrowed without the interest added. No, it's not that elementary school principal you were terrified of as a kid. Your interest rate is how much they charge, usually shown as a percentage of the principal balance. Lenders are interested in letting you borrow their money because they make money on what they loan you. When it comes to borrowing money, there’s no such thing as free. If your original loan was $20,000 and you’ve paid $5,000 already, your balance would be $15,000. It's the amount you still have to pay on your debt. Pay any less and you might get slapped with some hefty penalties. This is the lowest amount you are required to pay on a debt every month (includes principal and interest). You're just not good enough.ĭebt terminology can be confusing and overly complicated-but it doesn’t have to be! Let’s break these down in a way you can actually understand. No more watching your paychecks disappear.īecause when you get hyper-focused and start chucking every dollar you can at your debt, you'll see how much faster you can pay it all off. Step 4: Repeat until each debt is paid in full. Step 3: Pay as much as possible on your smallest debt.
Step 2: Make minimum payments on all your debts except the smallest. Step 1: List your debts from smallest to largest regardless of interest rate. With every debt you pay off, you gain speed until you’re an unstoppable, debt-crushing force.
Why a snowball? Because just like a snowball rolling downhill, paying off debt is all about momentum. Then, take what you were paying on that debt and add it to the payment of your next smallest debt. The debt snowball is a debt payoff method where you pay your debts from smallest to largest, regardless of interest rate.
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