The Best Thing to Do in Paying Off Your Debts

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? You may choose either one of the two methods:

The Snowball Approach

Dave Ramsey, a famous money person, introduced the concept of the “snowball approach.” It is listing every one of your debts to several institutions in which you have an account (credit cards, car loan, housing loan, multi-purpose loan, etc.) and then settling your smallest balance first. What you will do is to pay all the minimum balances needed by each of your account except the tiniest one. And then, you aggressively pay off the smallest one and tackle the next smallest until you have paid everything.

The Avalanche Method
This system is likely complete opposite of the Snowball Approach. In here, you are going to actually start paying your most high-priced balance with all the highest interest. This does not necessarily imply that your chosen largest balance gets the highest interest you have to study and think about the one that has to be paid off first.
For example, 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 with a 3.5% interest, and P10,000.00 with an interest rate of 1.5%. The first one that you need to repay is P8,000.00 because of compound interest. Once you have ridden off the balance together with the highest interest rate, you could now proceed to the next with the highest interest rate i.e. P10,000.00 till you have repaid every one of them.

The Best Thing to Do

So which strategy is good for you? Mr. Ramsey stated that it's not necessarily about math but a matter of behavior. If you are somebody who needs a lot of motivation to repay your financial troubles, then the snowball approach is right for you. However, if you are somebody that is driven to settle your debt, then use the avalanche method. High interest rates compound rapidly so it will require time before you get debt free.
As you accomplished settling a debt, reward yourself so that you can be motivated to go on. Buy yourself a gift or give yourself a break by having coffee with a friend. Once you are debt-free, start eliminating your credit cards and maintain the one which fits into your budget. Do not be enticed to acquire 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, anybody can start saving on your emergency fund or open an account for the education of your children. You could perhaps consider investing in stocks or mutual funds. At Truly Rich Club, you will learn how to stay financially free. Want to know how? Be a member now!

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