Paying off the debt is a very difficult task. Either way, it takes time and patience to reduce your debt to $0. Many people use the two most commonly used ways to reduce debt: Debt Snowball and Debt Avalanche. There are other methods, but these are the most common and practical methods. They are not only widely recognized, but also effective. The choice of debt reduction for you depends on the way you think and the type of debt you have.
For myself, I chose the Debt Avalanche method. After digging and doing math, I realized that I saved a lot of interest through an avalanche, which is what I did. It wasn’t easy. I had to keep motivating myself to stick it out, but I did. I also repaid more than $50000 in credit card debt and $25000 in other loans. Therefore, debt repayment is very likely, but requires some sacrifice and attention. I sacrificed to go out for lunch and packed my lunch for years. I’m still not going to lunch. The savings are great!
Snowball is a famous Dave Ramsey certification. The famous financial master has found a way to fit a person’s mood. The reason this approach works is how it keeps you motivated during long-term debt returns. You are looking for emotional victory.
When you start snowballing, you are asked to write down your debt in the order in which the balance increases. Basically, you start with the smallest balance of debt. It doesn’t matter what debt you have. Some even include mortgages in the process. It depends on your goal. This is an example:
Credit card $2: 900
Credit card 3 to $2000
Credit card 4 to $5600
To start snowballing, you must pay off the minimum balance while still paying the minimum monthly payment for other debts. It is very important to remember this. You must continue to pay the minimum balance of all debts. Don’t be late or stop paying. This is not a good idea, it may damage your credit score.
When you pay off more debt, you can add more money to the monthly payment. The key to the plan and the avalanche is to pay more than the minimum payment for each debt you were dealing with at the time. If you pay an extra $50 a month to add payments, this is a good breakdown.
Credit card 1 minimum: $20 plus $50 and pay $70 a month until it disappears, and then you change $70 into the next credit card
Credit card 2 minimum: $35
Credit card 3 minimum: $100
Credit card 4 minimum: $180
You can add an additional $50 to the first credit card for a total of $70 a month. Once the card is paid off, then you pay the minimum payment credit card 2, plus credit card 1 payment. You will eventually pay a credit card of $105 a month. You will continue this until all your credit cards / debts are rewarded.
The method of avalanche is more about mathematics than emotion. It does not involve your psychological thinking, but pure mathematics. If you are a math fan, then the Avalanche method may suit you. I’ll explain how you need to figure out how to create some celebration milestones. Unlike Snowball, you can win quickly with a smaller balance, and Avalanche can take you a little time.
As far as I am concerned, my higher interest rate debt is also some of my higher balances. This led me to work harder and pay them off longer, but it also paid me the most interest. This is why I choose this method, it is useful to me. It doesn’t work for everyone. You need to create milestones to work hard.
To start the debt Avalanche approach, you will charge the debt and list it in descending order (top interest rate first) by interest rate. We use the example cards above, but add their interest rates.
Credit card 3 to $2000 annual interest rate: 19.99%
Credit card $350 per year interest rate: 10.99%
Credit card 4 to $5600 annual interest rate: 8.99%
Credit card $2 $900 annual interest rate: 5.99%
When you list your debts in descending order at interest rates, you actually take the shortest time to repay them. You will also save the most interest. When you first withdraw the highest interest rate, you will save the percentage difference from one debt to the next. You must repay the debt in the same way as the snowball, add any additional payments, and then use your first debt to pay the second. You go on with this until all the debts are paid off. This approach makes the most sense financially and mathematically, but if you don’t have the will to continue your debt relief program, it won’t work.
It changed my life.
In addition to paying off debt and saving, I also played some games on the system. Instead of accepting high interest rates, I tried to lower interest rates by using balance transfer credit cards. Because I have a good credit score, I get 0% cards and transfer higher interest rates to effectively reduce them to zero. One of my favorite cards is the Chase Slate card. It has one of the best balanced transfer promotions. Learn more about the card and see if it suits you.
* if you know that you can pay the full balance during the promotion period, you should only use the balance transfer credit card. Most people give you 0% interest for 12 to 18 months, but you have to pay the full balance during that period. If you can’t do this, don’t try the process. It will plunge you into deeper debt. It applies only to those who know how to do it and who are disciplined.
Finally, it’s all about money, and your state of mind. If you can get through this, then the Avalanche approach may be your best choice. It all depends on your debt position. Usually, it makes more economic sense to attack your high-interest debt first, but look at all the debt and figure it out. I just want you to start now. Literally, it’s right now!