The person, who has been in debt and knows the answer to the question “Is consolidating loans a good idea“, can understand the real pain. All the time you feel stressed and think about how to solve the problem. Well, you can give it a try to solve your debt problems yourself before resorting to professional help.
One of the DIY methods to solve your credit card debt problems is by using the debt avalanche method. You can use this method to repay your multiple bills and get out of debt completely.
Check out how debt avalanche method can help you to repay your debts.
Debt Avalanche Method to Repay Your Debts
Like any other debt relief method, to use debt avalanche, at first, you’ll have to gather your statements and bills. It will help you know the current outstanding payment, the APR, the current minimum payment on your bills, the due dates, etc. Knowing the date is also important because if you can’t make the minimum payment within the due date, the late fees will get added to your outstanding balance and your debt will increase.
Now, it’s time to list your debts. List them from the highest interest rate to the lowest one. Take into account your credit card bills, utility bills, personal loan payments, medical bills, and so on.
- Make minimum payments on all. Now, first of all, make minimum payments on all your debts. Doing so, you can avoid late fees and penalties.
- Put an extra amount to one debt. Then, put an extra amount, towards the account with the highest rate of interest. Continue doing this until you repay the debt till the last cent.
- Continue till you are debt-free. After that, target the second debt in your list and continue with the same strategy.
Every time you repay one debt, the monthly amount you’re paying gets higher. And, it helps you to get rid of debt faster.
Try not to reduce the debt amount. It will help you to repay your debts faster, and thus saving money on interest payments.
How Is It Different from Debt Snowball?
Debt snowball is another get-out-of-debt strategy that can help you repay your debts on your own.
To brief about the debt snowball method, after making minimum payments on all debts, you make an extra payment towards the debt with the lowest outstanding balance. Once you pay it off, you make an extra payment towards the next debt with the lowest outstanding balance in your list.
Often we can’t decide whether to go for debt avalanche or debt snowball method. If you’re deciding from a financial point of view, then I would say that debt avalanche makes more sense.
Let’s discuss it with an example.
Suppose your credit card debt scenario looks like this:
If we use the specific calculator to compute, then we’ll find that:
So, a savings of about $2,162 if you use the debt avalanche method and also repay debt one month faster!
Now, if you increase your extra monthly payable amount, you’ll be able to get out of debt faster.
If you can make $3000 per month towards paying off debts, you’ll need 31 months to repay your debts using the debt avalanche method. And, you’ll pay back all total $89,194 by using avalanche in comparison to paying $91,078 in case of the debt snowball method.
So, mathematically debt avalanche is a more efficient, faster, and cost-effective way to get out of debt.
When You Should Choose the Debt Avalanche Method
You need to be sure of these things before choosing the debt avalanche method as your preferred debt payment strategy.
- You want to repay the debt on your own. Yes, you need to feel the urge to repay debts on your own. Only then you’ll be motivated enough to stick to it come what may. Moreover, you won’t have to pay the fees, which you otherwise would have to pay if taken professional help to repay debt.
- You can maintain patience to see the results. If you don’t want instant results and can wait to see it, you can choose the avalanche method. Since you’re dealing with the highest interest debt, it’ll take some time because interest gets accumulated on the outstanding balance every month, thus raising the debt balance.
- You have a large debt balance with a high rate of interest. If your debt balances are quite high with a relatively higher interest rate, this method will be more beneficial.
- You want to save in the long run. As shown in the example, by choosing the debt avalanche method, you can save more in the long run, which will benefit you financially much more.
What Other Debt Relief Options Can You Choose to Get Out of Debt?
If you think you can’t repay debts on your own or if your debt amount is beyond your control to manage, you can seek professional help. Debt relief programs seem too good to be true because they help you to repay your debts and save money at the same time with complete professional guidance.
Broadly there are 2 best debt relief programs to choose from depending on your financial condition, consolidation program, and settlement program. The first one helps you to repay your debts in full, and the second one is useful if you can’t repay the outstanding balance in full.
So, analyze your financial situation and make your decision. However, if your debts are not that huge or if you can control yourself, you can give the debt avalanche method a try. And, most importantly, try to save as much as you can, so that you can put that extra amount, towards being debt-free, as fast as possible.