If you have any amount of debt to pay
off you’re probably wondering what the best debt elimination strategy is that
will get you back in the positive in the fastest time for impossible’ in the
United States debt has been skyrocketing year after year with personal consumer
debt surpassing fourth trillion dollars in 2019 which means that Americans could
be doing a much better job when it comes to paying down their debts in this video
I’m gonna share with you one of the quickest methods of paying down your
debt the debt avalanche method and if you’re new to the channel hit the
subscribe button below for more informative content you’re probably
asking yourself what is the dead avalanche method do I need to be able to
ski will it be called the debt avalanche method is a strategy of paying off what
you owe by prioritizing loans and credit card balances with the highest interest
rates you see while it sucks to have to look at a huge debt balance every time
you check your bank balance what’s worse is paying annoying interest charges at
least when you accumulate debt by buying goods and services you get value out of
those things but interest charges are zero value added expenses therefore the
goal of the dead avalanche is to minimize the amount of interest you pay
allowing you to put more money towards paying off the principal which in turn
will allow you to be debt-free much sooner than if you were to use other
strategies like the debt snowball now that you have a good idea of the
principles behind this debt elimination strategy let’s now get into exactly how
you can set up your debts to be able to pay them down as fast as possible step
number one let’s out all your debts on a piece of
paper or an Excel spreadsheet list out each one of your debts from the highest
interest rate to the lowest this could include anything from money owed to your
brother to credit card debt and even your car loan just to name a few an
important point to note is that you are trying to arrange your debts from the
ones with the highest interest rate and not the highest interest charge while a
large balance with a smaller interest rate may be costing you more money every
month than the one with the highest interest rate in principle having along
with the highest interest rate still outstanding is the most costly step
number 2 make all your minimum payments after you’ve listed out all your debts
from the highest to lowest interest rates is now time to write down each
their respective minimum payments every month it is critical that you make the
minimum payments on each one of your debts as missing payments will not only
increase your debt but will also affect your credit score in fact being just
thirty days later on a payment can reduce your credit score by up to a
hundred points making getting a future mortgage or even a job that much harder
as a best practice setup a reminder in your phone to make each one of your
payments because oftentimes life can get busy and having a reminder means one
less thing you have to worry about step number three pay down extra on your
highest rate debt now that you’ve set up your debt listing and have made all your
minimum payments it’s now time to really get the debt avalanche rolling in order
to do this what you want to do is put any disposable income you have towards
your highest interest rate debt and if you’re thinking to yourself I wish I had
extra disposable income then it’s time to roll up your sleeves and get to work
most people have more free time than they think and one of the best ways to
use this time is to make more money this could be in the form of taking on more
shifts at work or picking up side projects no matter what this extra work
looks like the key is to funnel all that extra income towards your highest
interest rate debt allowing you to pay it off as fast as possible step number
four keep the avalanche rolling at this point you’re making solid progress have
paying down your debt by prioritizing them and earning extra cash to put
towards them within no time you’ll be able to stroke off the first debt on
your list allowing you to begin focusing your attention on the second one in
order to keep avalanche rolling you will need to do three things continue to make
the minimum payments on each debt earn extra income and finally add all
previous sets minimum payments to your new monthly debt contribution so for
instance if the debt you just paid off had a $200 minimum payment you will add
that amount to the minimum payment contribution on your next highest debt
creating an avalanche effect of a much greater payment and this larger payment
when compounded with extra income you’re earning will make your debt load
evaporate in no time now let’s jump into my computer and go over a demonstration
of how this process works all right so let’s assume that we have some debt to
pay off and the debts are the fall we have a credit card debt we have a
personal loan we have a private student loan we have an auto loan and finally we
have a medical office bill and the balance for the credit card is sixteen
thousand dollars and that one has a rate of seventeen percent interest
furthermore we have the personal loan which has a two thousand dollar balance
and has a seven percent interest rate furthermore we have the private student
loan at thirteen thousand dollars at five percent the auto loan at twenty-one
thousand dollars at 4.75% and finally the medical office bill is thirteen
hundred dollars and there’s absolutely no interest attached to it so now let’s
say that we have an extra hundred fifty dollars available each and every month
to put towards our debt which loan should we pay off first well before we
get into that I’m going to fill out what the minimum payment is for each one of
our debts and then we’ll go from there as you already know when you’re using
the data and lunch method you’re gonna want to pay the debt that has the
highest interest rate attached to it and any extra money that you’re going to put
towards your debt will also go towards that balance so in this circumstance we
have the credit card that has the sixteen thousand dollar balance and it
has a seventeen percent interest rate which is higher than any of our other
debts this means that we’re gonna be making our minimum payments on all of
our debts every month but when it comes to our credit card we’re gonna make that
minimum payment of four hundred and eighty dollars and then we’re gonna add
the extra one hundred and fifty dollars to it every single month until it’s paid
down now after paying up your credit card that minimum payment goes away so
that four hundred eighty dollars is going to be gone this means that you’re
going to have even more cash flow available each and every month to put
towards your debt so the six hundred and thirty dollars you are paying to your
credit card company can now go towards your personal loan which is along with
these second highest interest rate as a result you pay six hundred and sixty
nine dollars and sixty cents which is the six hundred and thirty dollars that
you’ve previously been paying plus you require thirty nine sixty as well this
larger payment will have that balance paid off in absolutely no time so the
next thing you’re gonna do is fold what you are paying on a personal loan in
your additional payments so you’ll pay an additional 669 60 per month on your
student loan the total amount you sent to your loan servicer is eight hundred
and fifty three dollars and thirty four cents which is a six hundred and sixty
nine dollars and sixty cents plus you required a hundred and eighty three
dollars and seventy four cents so effectively what you’re doing is each
previous payment is being added to the minimum payment for the next set you’re
paying off and as you continue to compound or avalanche your payments
you’ll soon become debt free thanks for watching if you want to go from the life
you have to the life you deserve then hit the subscribe button below