Imagine making $60 a week, and having 16k in debt and not knowing how you're going to bounce back. Oh, and don’t forget, you still have to eat and bills every month. You might have to imagine this scenario, but it was real life for me back when I was college. So In this video, I’m going to show you two of the most popular debt paying method. The snowball method (Dave Ramsey’s favourite) and the Debt Avalanche method.
Btw: You can be in debt at $60 or at $10,000 doesn’t matter.
What is the Debt Avalanche and Debt Snowball?
Simple explanation:
Story: My mom has 3 credit cards, and they are maxed out, and all have different credit card limits and also different annual interest rates.
Credit Card A: $2000 25%
Credit Card B: $5000 19%
Credit Card C: $1000 35%
Debt Avalanche:
With the avalanche method, you would pay the highest interest rate first even if it’s the lowest or the highest amount. C,A,B
Debt Snowball:
With Debt avalanche method, you would pay the Lower balance first, and the interest rate doesn’t matter. C,A,B
This also works with student loan debt and so on, just don’t include the mortgage because that’s different.
Debt Avalanche vs Debt Snowball
Full Details on Both
Debt Avalanche
Key: Story, this requires a lot of patience and Discipline. Example. Use mom to illustrate the example.
- My moms got into bad debt by buying furniture and cloths she didn’t need, now she needs to pay it back hears what she’ll need to do.
Step 1: Know how much she makes and ow much she spends and how much is left over
Step 2: Remove all the wants while she focuses on paying back
Step 3: Normal, take 100 dollars and add it to the card with the higher apr on top of the minimum
Extreme take 99% of the extra cash and put it towards the debt with the highest apr
Step 4: Pay all the other cards minimums meanwhile on the other cards
Step 5: Once your down with the first card takes all the money you use to pay monthly to that one and transfer it over to the other card wit the next highest apr
Step 6: repeat it over and over until your done.
- The goal is to save money and pay down the debt as fast possible
- Transfer payments from on debt to the next to maximize debt repayment time
- This Can also be automated, through auto pay
- Pay more than the minimum a $100 more at least
Snow Ball Method
Key: Same story with my mom but instead of paying the highest apr, you pay the lowest balance.
- This gives you momentum
- It's more expensive
- It’ll take a little longer
Which one would I use and why?
Choice:
I would go with the avalanche method, it’s the easier way to pay down your debt and save money while doing it. And that’s the exact method I do now. But… Most of my credit cards have promotional balances, so I pay the one that’s going to end the soonest. To save a ton of money on interest.
Why:
Discipline, if you don’t have it, that’s fine but if you never try you'll never have it. SO I sent everything on auto-pay, so it requires less energy and I only spend what I budget for, not a dollar more.
Alternatives:
Get a Consolation loan at a lower rate
Get a balance transfer (avoid interest while paying down
Simple Debt: Its method I’m working on like the simple budget
Final thoughts:
Don’t overthink it, just take action. Either way, you’ll be paying it down.
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