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    September 19

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The Debt Snowball and recovering from financial loss

Melinda Belle,

Added 23 October 2017

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A loss is defined as the fact that something or someone was taken from you. 

Have you ever experienced a financial loss in some form or fashion? 

If you have, you are not alone. I have also had my share of financial losses.

Know that experiencing a financial loss does not signal that you have no future. I am not going to tell you that you will recover everything you have lost overnight, whether it was taken from you or whether it was a result of your behaviour. It will take time to recover. Here are some strategies for financial recovery.

Recovery after Debt

Consider the money you pay to your creditors money that goes out of your pocket into their hands. In essence, it doesn’t stay with you.

Now imagine what you could do with the money you pay your creditors. You would be able to accomplish more, wouldn't you?

Ideally, no more than 35% of your income should be tied up in debt. Your debt service ratio helps you determine this percentage. To calculate this, you simply divide the total of your monthly payments by your gross salary. If you find your debt service ratio is above 35%, there are ways you could correct this.

You could use the debt snowball to start your journey to debt freedom. Please note throughout this process you still will be servicing all of your debts. Here’s how:

  1. For example, let’s say you have three debts. For Debt 1 you pay $100 monthly, for Debt 2 you pay $200 monthly and for Debt 3 you pay $300 monthly.

  2. You focus your energy on repaying Debt 1 first. Then you use the money from Debt 1 to apply to Debt 2. The total amount of money being repaid to Debt 2 is now $300.

  3. After you have repaid Debt 2, you apply the money from Debt 1 and Debt 2 to Debt 3, therefore you end up repaying Debt 3 with $600.

  4. You decide on the level of priority you apply the debt snowball with. Either you choose to repay the debt with the highest interest rate or the debt with the smallest amount first.  

Whether you have suffered loss or made poor decisions with your money,  financial leadership is key to helping you recover.

The first step in embracing financial leadership is to take responsibility, especially if your loss was experienced through your decision making. It may be hard at first to face yourself in the mirror and admit you have made a mistake, but it is necessary for the recovery process to begin. There’s nothing weak about admitting your mistake.

Once you have owned up to your errors, you could adopt this new way of behaving with your money, give your money PURPOSE (in that you have a good idea of where you are going) and giving your money DIRECTION (in that you ensure your money is being placed where you desire it to be).

The key is to develop a strategy which will set you on the road to recovery.

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