Debt Avalanche To Pay Off Your Debt

by CB on November 19, 2012

Getting into debts is very easy, but getting out of debts is difficult task. It is not easy to do away with the behaviors and attitudes that put you in debt in the first place. It took you years to develop your debt-plunging attitudes and behaviors. Thus, it will require time, grit determination on the part of the debtor to eliminate these debt-plunging attitudes and behaviors. Also to successfully get rid of debts in your life, you will have to come up with a solid plan.

There are several ways to deal with debts. The results gotten from the various ways of dealing with debts vary. Some people have successfully dealt with their debts using some of these methods, while others are still saddled with debts, despite using these widely touted methods. So, it is different strokes for different folks.

Avalanche!

One of the proven methods of getting out of debts is the debt avalanche method. This approach has helped many people pay off their debt in record time The additional benefits of using this approach is that you pay less interest to your lenders, which is good news to every debtors.

The debt avalanche method of getting rid of your debts works on the principle that each debt has the same tax liability. Thus, it use the interest rates charged on debts as the most important indices to work with. In the case of debt accounts that have different tax rates, the interest rates after taxes will be the figure to work with.  The real goal is to consolidate credit cards so you can streamline and pay off debt faster.

The Next Step

After successful determination of the interest rates accruing to all your debt accounts, the next step is to list all your debts in order of the interest rates charged on them. The debts with the highest interest rates should top your list. Credit card debts usually list at the top for most people. Debts like student loans having tax credits on them should be at the bottom of the list. Note that, for the debt avalanche approach to work be effective and achieve the desired results, all your debts must be listed on the list. No debts, no matter how insignificant, should be left out of the list. Your debt account balances is not an important factor in this approach of resolving your debt issues. This is why it is not considered in the debt avalanche method.

After coming up with a comprehensive list of all your debts in order of interest rates charged on them, you should allocate at least the minimum payment for the month to each debt first. Also payment due date should be carefully noted so that you will be able to meet up the payment on or before the deadline. If possible, devise a technique to remind you of your debts payment due date. You can use your mobile phone alarm system as a reminder if it is convenient for you.

If any spare cash is left after budgeting for the minimum monthly payments of your debts, you should allocate to the debts with the highest interest rates. Money kept aside for emergency purposes can be allocated to debts with the highest interest rates. Ability to do this will hasten your escape from the debt trap. This process should be repeated every month.

Once you have completely settled a debt account with a creditor, you should remove it from the list and divert the extra funds to sort out the debt accounts with the highest interest rates. You should avoid the temptation to apply for a credit card at this point.  Settling such accounts will spare you of the high interest rates charged on such accounts. This frees up enough money for you to use for other purpose.

The debt avalanche approach helps you to make at least the minimum monthly payment to all your creditors. Doing this on a monthly basis will help you to settle all your debt issues. This is the best mathematical method to pay off all your debts in record time and save you money at the same time. Many people have testify to the effectiveness of this method.

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