Are you fed up with your debts and you want to get rid of them? I am Clark Howard. I'm going
to show you how to take those debts down. I'm going to show you how to calculate step-by-step
how long it'll take you to become debt-free. First, you got to make a list of all your debts,
not just the balance. You got to have the interest rate debt by debt.
So that's key because there are two main methods that are recommended for you to attack your debts
till you pay them off. One of them I call laddering, often other people will call
it the avalanche method. The other is called snowball. The idea of each is that you figure
out how much you owe. With snowball, you take the smallest debt on down to the largest debt.
With my method of laddering, you take the highest interest rate on down to the lowest interest rate.
The idea with either is it depends on your psychology, how you feel better. Because the
idea of snowball is by attacking your smallest debt first, you feel like, "Hey, I went from
owing eight people money. Now I only owe seven" and on like that. But mathematically you pay off
debt quicker if you do laddering method, where you pay minimums on all your debts except the one with
the highest interest rate till you wipe it out. And then you go to the next debt down the list.
There are calculators available to you where you can put in your exact debts,
your exact interest rates and you'll see how long it'll take you to go from owing all these people
money to being completely debt-free. Once you've decided that you want to get debt-free, it's great
to see how the numbers are actually going to play out. That's why I love this calculator you
can use Unbury.us. Because with it, you put in your exact loans that you have, the loan type,
the balance you have, the minimum payment they require, and the interest rate that loan covers.
The key to you getting out of debt is don't let the lenders manipulate you. They
always state a minimum monthly payment that stretches out your loan as far as possible,
and earns them the most interest, costs you the most money. So I have examples for you and I
kept them really simple. A student loan with a balance of 10,000, minimum payment 300 a month,
an interest rate of 5%. A credit card with a $2,000 balance, minimum payment, a hundred bucks,
interest rate of 17%, which is the average interest rate in the country right now.
And an auto loan with a $5,000 balance, $250 minimum payment and an interest rate
of 6%. That's maybe a little cheaper than average, but you could possibly have that.
And then it gives you what your total minimum payments would be for those added together,
which is 650 bucks. But the whole idea, don't pay minimums. That's what all these
people want you to do, so that your payments stretch, the total interest
you pay goes up and up and up. I want you to resolve to pay more than the minimum.
So in the example I have here, instead of paying your 650 a month to these bills. I
got you paying a thousand. Yeah, that's right. I want you to tighten the spending belt so you
can put more money towards your debt. If you do the laddering method, also known as avalanche,
this calculator shows how quickly you pay off your debt. The other interesting
thing is that if you do the laddering or avalanche method instead of snowball where
snowball you're attacking the debt with the smallest balance, you significantly reduced
the total amount of debt you'll pay by doing laddering or avalanche versus doing snowball.
Typically, you'll reduce your overall interest that you pay by 10% or more
by attacking the highest interest rate debt as solidly as you can,
and then work your way down to the next highest interest rate and then you finish paying off your
debts with the lowest interest rate last. Once you've been paying down debt for six months,
you see a significant decline in your overall balances and every dollar you pay from then
forward so heavily goes towards the principal you owe instead of just servicing interest.
And you can see these numbers for your exact situation. And then once you got them,
just get it done. It really doesn't matter what method you choose. There's even one where you
mix and match that sometimes it's referred to as blizzard, not like at Dairy Queen. The whole
idea is whatever method you come up with that puts you on a path where you feel the progress,
where you have an end date in mind that you're going to be debt-free, that's core and key.
And remember this works best when you come up with an amount beyond
the minimums you owed everybody and you pay consistently more than that minimum
every month. And if you can pay the same amount every month, even better,
because you can perfectly track when you are going to be completely debt-free. And that's the goal.
I love community where we all help each other and that's why we have our Ditch Your Debt page
on Facebook, where we all support other. And by the way, if you enjoyed this video, like it and
you can subscribe to our YouTube channel. And for more info for your wallet, check out Clark.com.