In this video, we will see how to pay off debt using two methods debt avalanche and debt snowball method.
You must be frustrated with installment reminders from your creditors or your banks, Even before you realize what’s going on with your debts it gets out of control. If your debt accumulated due to overspending or unexpected expenses you can surely get rid of your debt because the sooner you start, the sooner you finish, the more you save.
You may have mortgage, car loan, student loans, credit cards, personal loan or something else, in today's video we’ll know how to pay off debt faster.
Create a list of your Debts including principal amount and interest rate:
Don’t worry about this, because this is the starting so Start listing all your debts and its interest rate such as mortgages, car loans, student loans, credit cards to sort your interest rate from highest to lowest once you have calculated all debts you will now know which loan has highest rate of interest. This method is also called as debt avalanche method.
Lets say:
$ 8000 Auto Loan is 2.39
$17000 Education Loan is 3.73
$ 11000 Credit Card is 20%
In this scenario, Its now clear which loan has the highest interest rate, now you will need to start off by paying your most expensive debt first and in this case its credit card followed by education loan. Once you have recognized the most expensive debt you will need to plan a strategy to pay it off.
Lets see debt snowball method:
In debt snowball method you will need to create a list of debts in ascending order along with monthly minimum payments.
$ 8000 Auto Loan is 2.39
$ 11000 Credit Card is 20%
$17000 Education Loan is 3.73
In this scenario, you will need to start off by paying auto loan, because you owe the smallest amount of money on auto loan.
Reduce Spending
Reducing your spending will help you save more money and will increase your chances to pay off the most expensive debt because the problem is not how much you make but how much you spend. You need to figure out the things that you can cut back on or if you can find a cheaper alternative
For example if you are buying a food from a grocer then the best way is to make a shopping list in advance and stick to it.
Utilities: Though you can’t do without power and water, but you can always find ways to lower your their bills and you can save on your utility costs, telephone bills, internet bills etc.
Insurances: Check if all of your insurance packages are necessary. If they are, you can use comparison sites to make sure you’re getting the best deal and switch if you’re not.
Increase your income
One of the easy ways to reduce your debt is by increasing your income by working on side hustles, so that you can pay off your debt faster.
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#payoffdebt #snowball #avalanche method
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