There are multiple ways of dealing with debt. Some people simply pay it off in lease, while others pay a lump-sum amount. A few of them also declare bankruptcy as they’re unable to pay back the loan.
While all these debt repayment methods work in their own way, you need to follow a proper strategy, or else, it can all come back crawling in the form of interest fees. That’s right, guys. The interest rate remains a primary concern for everyone out there.
If you’re someone who has multiple debts hanging on your debt and you’re losing your sleep over it, you need not worry anymore. In this article today, I’m going to introduce you to one of the most popular debt repayment methods, the debt avalanche method.
It will surely help you as it has helped me pay off multiple debts that I had. From student loans to credit card debt, I was drowning a year ago. But thanks to the debt avalanche method, I’m now all clear and free to move ahead in life.
What is the Debt Avalanche Method?
The debt avalanche method stands tall among the most followed debt repayment strategies. In this method, you make minimum payments on all your debts and the money left goes to the one with a higher interest rate. It won’t be wrong if I say that this method kills two birds with one stone.
However, using the debt avalanche method, one needs to ensure that he has enough money in his account to make all these payments every month. It requires a disciplined attitude and consistency. Also, the money you save must be directed to the debt at a higher rate. Without that, the entire idea behind the debt avalanche method miserably fails.
How Does the Debt Avalanche Method Work?
The first thing that you need to do to make the debt avalanche method work is to designate a significant part of your monthly earnings to pay off your debt. In case you’re barely making the ends meet, you can use your savings to do the same.
Let me give you an example, if you earn $1000 a month, take out a few bucks for the necessities like apartment rent, car lease, groceries, and medical bills, and direct the rest to pay the debt.
Pros of the Debt Avalanche Method
The biggest benefit of the debt avalanche method is that it minimizes the interest fee as you keep following the strategy. As you keep making minimum debt payments, they keep reducing the interest fee. Because of this reason, it is said that the debt avalanche method works best for credit card debt that comes with a high-interest rate. Not just that, it also reduces the time to go entirely debt-free.
Cons of the Debt Avalanche Method
The debt avalanche method requires commitment and discipline, which is among the prominent disadvantages of this method. The reason is, many people fail to stay committed to the process, something that brings them back to square one. It usually happens due to unforeseen expenses like a medical emergency. Thus, to make this method work, you must keep a few bucks aside as an emergency fund.
The Final Word…
Lastly, I want you to know that the debt avalanche method isn’t about instant gratification. You won’t get to see the results or any improvements in the first 2-3 months. Thus, I’d say you must not lose motivation in the process. Remember that it’s a gradual process and it will make you succeed if you stay committed to it. I wish you good luck, my pals!