For many individuals, eliminating debt is truly one of life’s challenges. Unless you start out thinking hard and intensely would like to get out of it, you'll finally end up living your life filled with debts. So, how are you about to settle the money you owe?
For many people, eliminating debt is one of life’s challenges. Unless you start thinking hard and actually would like to get out of it, you'll finally end up living your life filled with debts. So, how are you planning to pay off the money you owe? You may choose either one of the two methods:
The Snowball Approach
Dave Ramsey, a famous money person, introduced the method of the “snowball approach.” It is listing every one of your debts to various institutions in which you have an account (credit cards, car loan, housing loan, multi-purpose loan, etc.) then paying off your smallest balance first. What you actually do is to pay the many minimum balances needed by each of your account except the tiniest one. Then, you aggressively pay off the smallest one and tackle the next smallest until you have paid everything.
The Avalanche Method This procedure is exactly the complete opposite of the Snowball Approach. In here, you are likely to actually start paying your most expensive balance with all the highest interest. This doesn't mean that the largest balance gets the highest rate of interest so you will have to analyze and think about which has to be settled off first.
To illustrate, let us say you have three credit card balances. One is P1,000.00 with an interest rate of 1%; another is P8,000.00 which has a 3.5% interest, and P10,000.00 with an interest rate of 1.5%. The first one that you must repay is P8,000.00 due to compound interest. Once you have ridden off the balance with all the highest interest rate, you may now proceed to the next with the highest interest rate i.e. P10,000.00 until you have repaid all of them.
The Best Thing to Do
So which strategy is best for you? Mr. Ramsey stated that it's not necessarily about math but a matter of behavior. If you are somebody that demands a lot of motivation to repay your debt, then the snowball approach is the best for you. However, if you're someone who is driven to repay your debt, then make use of the avalanche method. High interest rates compound rapidly so it will need time prior to getting out of debt.
When you accomplished settling a debt, celebrate your success so you'll be motivated to go on. Buy your own gift or treat yourself by having coffee with a friend. Once you become debt-free, start eliminating your credit cards while keeping the one that suits you best. Do not be enticed to get a new loan as this might cause you to a financial crisis again. Learn to say “No” to marketers who lure you to buy on credit. Teach yourself to be responsible and also be reminded to keep out of debt.
Being debt-free, now you can begin saving for your emergency fund or open an account for the education of your children. You may also consider investing in stocks or mutual funds. At Truly Rich Club, you will then see how to stay financially free. Want to know how? Be a member now!
New York based founder of Philippine Virtual Assistant Network - Philippines largest community of Filipino Virtual Assistants with more than 13,000 members. He also founded PVAN Academy, VA Internship Program & Web Internship Program, an online learning & personalized mentoring website that caters aspiring virtual professional & web designers to work from home. Likewise Jay is also the Principal of Remote Virtual Assistant Agency, a virtual assistant staffing agency which helps several Filipinos to have a work from home job which currently serves several clients around the globe. As an author, he published Be a Rockstar Virtual Assistant | The Ultimate Guide in Working Online. on amazon.com to help aspiring virtual assistant to work from home Follow him on Twitter, Connect with him on Facebook, Linkedin or visit his personal website www.JayPasana.com