The debt-snowball method is used by many people to strategically and mathematically reduce the amount of debt that is owed. However this method has drawn criticism since many believe that paying off the debt in time instead of using such doctoring in hind-sight is far more effective. On the other hand it cannot be denied that this method offers a scientific and systematic way to get out of debt in a timely manner without complicating the pay-off.

• In this method, the lowest amount of debt is first paid off and the highest amount is paid last. However there is another way of snowballing the debt by giving priority to those debts that have a higher interest rate instead of the ones which have bigger balances but lower interest rates. The second method of paying off debt is considered to be psychologically satisfying since smaller debts can be quickly paid off. However, the first method in which the payments go to higher interest rate items first is much more pragmatic and is recommended.
• Snow-balling the debt is a simple method where a debtor can start making payments to the amount which has the highest interest rate. This means that those items with high interest rate are paid off using any additional funds available at the disposal of the debtor. All the other payments can be minimum payments and no more; however for the debt which is being snowballed, the payment is the minimum plus any additional capital available to reduce it. The process is repeated on a monthly basis till the debts are paid off one by one.
• Snow-balling may be effective for many people; however it is not recommended for those who are unable to control their balances (especially on credit cards). This is because this method requires some amount of discipline and penny-pinching at the same time. If a person starts to use the high interest rate product once again before all the debts are paid off then it is of no use since the amount owed will again increase instead of decreasing.
• There are many advantages as well as disadvantages to this method and an obvious benefit is reduction of the complete amount of the debt that is owed. However, a disadvantage is that if the debtor decides to use one of the loan products then the debt will again increase and subsequently mess up the schedule for snow-balling of the debt. Those who want to opt for snowballing are usually those who are under immense personal debt. This means that it is better not to use this method if you are unsure whether you can avoid the temptation of using one of the open lines of credit.

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Secured loans are those that are made by offering collateral against the amount that is lent and are less risky for the lender compared to unsecured loans. The decrease in the risk involved for a lender is because of the fact that the lender is legally entitled to repossess and foreclose the property in case of a default by the borrower. The foreclosure usually leads to a public auction of the property and the unpaid debt is satisfied by the proceeds received through such property.

• A typical example of a secured loan is a mortgage loan which can be obtained by pledging the house or real estate belonging to the borrower or mortgagor. In a mortgage loan it is possible to take out more than one loan since the equity in the property can be utilized many times. However, getting more than one loan will also mean that the mortgagor will pay a higher amount of interest on the loans because of the elevated risk to the lender.
• Another type of secured loan is a non-recourse loan in which the creditor’s financial interest only extends up to the collateral provided. What this means is that if a borrower defaults then the collateral can be seized and sold but not other assets that the borrower may have. Thus these types of contracts protect the debtor from losing everything to the foreclosing entity.
• A foreclosure occurs on a collateral if the debtor or borrower defaults on his or her payments. A foreclosure essentially involves either the transfer of the title of property to the lender which is called deed in lieu of foreclosure and is much more accommodating compared to a direct foreclosure. There many other types of foreclosures such as “power of sale” and foreclosure by judicial sale”. The circumstances and demographics dictate which type of foreclosure is put into action if the borrower defaults.
• Repossession can also occur if an asset is pledged as collateral and involves the lender taking possession of the asset that is pledged. In a noteworthy case in the United States, a car was towed away as repossession with the owner in it. The court decided that it was illegal to breach the peace of a person in such a manner and the repossession was held invalid. However in many cases there is no need for a court order on any type of government intervention when as far as repossession is concerned.
• If a contract leads to repossession then the case may not end there if the proceeds from the asset that is sold are not enough to pay back the amount that is owed. In such circumstances the creditor has the right to sue the debtor for any amount that is lacking to fulfill the financial obligation arising through the contract.

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In the United States of America the Federal Family Education Loan Program (FFELP) and the Federal Direct Student Loan Program (FDLP) comprise of consolidation loans that permit students to combine Stafford Loans, PLUS Loans, and Federal Perkins Loans into one solo liability. This results in cheap monthly repayments and a longer period for the loan. Different from the other loans, consolidation loans have an unchanging interest rate for the entire time of the loan.

• These loans have extended terms than other loans. Debtors can decide on terms of 10–30 years. Though the monthly repayments are lesser, the full amount amount paid over the term of the loan is advanced than would be paid with other loans. The unchanging interest rate is planned as the weighted average of the interest rates of the loans being consolidated, handing over comparative weights according to the amounts borrowed, rounded up to the nearby 0.125%, and having a ceiling at 8.25%. Some features of the original consolidated loans, such as post graduation grace periods and special forgiveness circumstances, are not carried over into the consolidation loan, and consolidation loans are not collectively suitable for every debtor.
• When a student submits an application for student loans through the U.S. Department of Education, or through a school’s financial aid office, a variety of sections of that loan could be financed by diverse entities. Private banks might finance a part of the debt. The U.S. government could directly finance a piece in addition. Those who change schools might also discover that their lenders change. After a while, the student could be in debt a lot of diverse lenders. This might cause misunderstanding and annoyance.
• Doing away with numerous lenders, and numerous payments every month for student loans, can be an extremely smart scheme. Keeping track of a single payment is far easier than making four or five lesser payments a month. Additionally, college debt consolidation gives the student with an improved idea of when the complete loan package will be paid off, allowing the student to plan forward in a easy manner.
• There are many financial motivations why a student might come across it a benefit to consider college debt consolidation. A student who is under pressure to meet the monthly expense of the unconsolidated loans might require a lesser interest rate. A number of borrowers might also be concerned about changeable interest payments. In both cases, debt consolidation might be able to lend a hand.
• Consolidating college debt under a single lender can give confidence that lender to increase in length the repayment terms, implicating lesser monthly payments. The swap is that the student will use up additional years paying off the credit. This might assist the borrower who is struggling to meet those monthly obligations. Moreover, if there are changeable interest rates that worry the borrower, it might be to his or her benefit to want a consolidated, unchanging rate student loan. The college debt consolidation lender can review each and every one of the alternatives with the borrower.
• Federal student loan consolidation is frequently called as refinancing, which is erroneous since the loan rates are not altered, just locked in. Very different to private sector debt consolidation, student loan consolidation does not invite any fees for the borrower; private companies make money on student loan consolidation by gathering subsidies from the federal government.
• Student loan consolidation can be supportive to students’ credit rating; however it’s very important to make a note of the fact that not each and every one of federal student loan consolidation companies reports their loans to every credit bureau.

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