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
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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
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