4 Debt Repayment Methods To Explore
You are tired of dealing with debt and feel like your debts are dragging you down. You are motivated to accelerate your progress toward debt freedom, but you’re unsure of the best way to attack your debts or how to pay off your accounts fastest.
What is your next do-it-yourself debt repayment step? How do you know where to start?
While most of the financial experts and popular radio jockeys in the debate only discuss two options, we have identified four debt repayment acceleration options from which to choose. You’ll find them outlined below, followed by a description of the PowerCash tool that can accelerate each method:
Debt Avalanche Method (attack debts from highest to lowest APR)
Debt Landslide Method (attack debts from newest to oldest account)
Debt Cascade Method (attack debts based on this month’s minimum payments baseline)
Debt Snowball Method (attack debts from smallest to largest balance)
Choosing the Right Debt Repayment Method for You
How do you know which method will work best for you? Everyone’s financial situation is different, from their household income to the amount of debt they have to the types of debts they struggle with. For that reason, there is no one right way to attach debt reduction on your own.
However, by taking into consideration your answers to just three questions, you can determine which of these four methods best matched your own situation.
Everyone in debt wants to get out of it. That’s the primary purpose of debt elimination DIY methods. They will all work and help you achieve this purpose. However, everyone should also have a secondary purpose in getting out of debt. This secondary purpose will determine which method best fits your personal needs and preferences.
First: What is your primary motivation for becoming debt free? Is it saving money on the interest you pay? Are you preparing for homeownership? Are your loans and credit card bills overwhelming your income? Are you just plain tired of being in debt?
Answering these questions will help you determine which DIY debt elimination method is right for you. Each purpose matches with a different debt repayment method.
Available Debt Acceleration Money or Your “DAM” Payment
Your Debt Acceleration Money or Your DAM Payment is the amount of money you can send to your creditors above and beyond your minimum payments. You will find it difficult to accelerate your debt balance payoff if you have no extra money to send to your creditors each month. Making the minimum payments each month on your debt means you’ll need fifteen to twenty-five years or more to achieve debt freedom.
The PowerCash tool will help you determine how much of a DAM Payment you can make.
Second: How much extra money are you able to put toward your debt payments? If you have not done so already, use our PowerCash calculator and tool below to find additional funds to pay down your debts faster. The more money you free up and make available to your debt reduction plan, the sooner you’ll get the taste of debt freedom.
The best-laid plans will amount to nothing if the planners do not put them into action. Unfortunately, most consumers in debt did not end up that way due to an over-abundance of self-discipline. Quite the contrary in many cases. That’s not to say that everyone in debt has no self-control. Of course not. Medical debts, unexpected vehicle repairs, family emergencies, and other unforeseen events can throw even the best financially prepared households into credit card debt. Everyone’s commitment level to getting out of debt will differ.
Third: What is your commitment level? If you have the discipline to see your plan through, you are all set. If you are worried that your motivation might falter, you might benefit more from a method that gives you an early win and gives you the boost you need to keep going.
The Debt Avalanche*
The Debt Avalanche repayment method minimizes the amount of interest you pay over time, gets you paid off in the shortest period of time, and is generally recognized as the best repayment method for anyone with sufficient discipline and commitment to see the plan through to the end.
While making the minimum payments on all other debts, start the debt repayment Avalanche by focusing your DAM payment on your account with the highest interest rate. Each time you pay off a debt, move that account’s monthly payment to the next account on your list with the highest interest rate.
The Debt Landslide Method*
The Debt Landslide repayment method maximizes the credit-building power of monthly payments and balance reductions to help you realize a better credit score in the shortest amount of time possible.
Instead of focusing on your DAM Payment on your account with the highest APR, send your DAM Payment to the account you opened most recently. Because how the credit scoring models weight activity on recently opened accounts more than activity on older accounts, your DAM Payment to these accounts will grow your credit score fastest.
The Debt Cascade Method*
The Debt Cascade repayment method works within your current financial constraints to reduce your debt repayment period from fifteen to twenty-five years down to just three or four years. It does all this without requiring you to send payments each month in addition to what you are already sending.
Not everyone can come up with a DAM Payment. This method essentially turns your current minimum payments into a set, level-pay program until there is enough of a difference between your monthly payment and the decreasing minimum payments that you can switch to the Avalanche or Landslide.
The Debt Snowball Method*
The Debt Snowball repayment method works to get you a quick win by first eliminating your account with the smallest balance in the quickest time possible. A quick win can be just what you need to build the motivation to stick to your debt freedom plan.
This method has you focus your DAM Payment on your account with the smallest balance. This can help you get that early and easy account payment that will keep or increase the wind in your sails. Use the Snowball only until you have sufficient motivation to stick with the Avalanche or the Landslide method.
The PowerCash Tool
Use the PowerCash tool to free up an additional $50 to $200 or more in the household budget that you can use to accelerate your debt repayment (or accelerate your savings fund) with minimal pain and inconvenience. By taking just 10% of some of your “controllable” expenses such as groceries, dining out, entertainment, vacation, and gift-giving, PowerCash maximize the human tendency to live within the amount of cash we leave ourselves to spend while designating a significant amount of cash to put toward your debt repayment plan.
*It is interesting to note that no one debt repayment method creates greater motivation than another. The difference is not in the structure of the method you choose but in your belief in the method of your choosing. If you believe the Avalanche will be the best option for your success, then you will find the greatest motivation to complete the plan by using the Avalanche method. The same can be said about any of the four methods, so choose the one that makes the most sense for your situation.