A Debt Avalanche Method that is. What is the Debt Avalanche Method? It is one of the most popular ways to pay off your debt. It is highly recommended by many money experts out there. And why do we need a way to pay off our debt??? Because the average American household carries an average of over $12,000 of debts, not including your mortgage. That means credits cards, student and personal loans, and car loans are contributing to almost $4.2 trillion of debt as of November 2019. If you find yourself carrying this debt and not quite sure how to pay it off effectively, follow these Debt Avalanche Method steps…
1. Prioritize Your Loans By Highest Interest Rate
The first step is to look at all your loans and credit card debt and organize them by the highest interest rate first. Start at the top and create a list with the highest being your top priority. The highest interest rates are the the debts that are eating up most of your money!!! Organizing your debt this way will help you minimize interest, pay off principle, and be debt-free sooner.
2. Make All Your Minimum Payments
For each debt you have, write down the minimum payment next to each one. It is critical that you make the minimum payment to each debt EVERY month. If you miss making any payments, this will increase your debt and really hit your credit score. Just being 30 days late could cost you up to 100 points of credit.
3. Pay Extra Moolah On Your Top Debt
It is now time to throw some extra money at the top, highest interest rate debt on your list. Put as much money as possible on this top debt. Don’t do this at the expense of other bills, but use any disposable income you have to get this avalanche going. If you don’t have much disposable income, it is time to pick up that part time job, work more hours on your current job, or start a side hustle to get that extra green.
4. Keep The Avalanche Going
Once you have paid off the top debt, keep paying the minimum payment on all your debt, but take all the money you were paying on the first debt and put it on the next highest debt. Now your next debt is getting its minimum payment paid plus ALL the money from the first debt. That’s a nice chunk!!! Continue to do this for each debt you have until all your debt is paid off.
The Debt Avalanche Method is a great way to reduce your debt and be debt-free as fast as possible. This method does rely on you having some disposable income to throw on your number one debt (the one with the highest interest rate). If you don’t have the disposable income, you need to cut some expenses and/or get to hustling to make more money. You had no problem racking up the debt, so now you gotta hustle to get rid of it. This method works and is the fastest method for becoming debt free.
Next week we will talk about the Debt Snowball Method. This is another popular method for knocking down debt. Though is it not necessarily the fastest, it has it benefits. Next week we will check them out and compare the two methods. See you then!!!
[…] Money Monday, we talked about the Debt Avalanche Method of paying off your debt. Today, we will talk about another way, the Debt Snowball Method. I […]