Wednesday, March 7, 2012

Debt Avalanche

It seems that the majority of debt reduction plans all have some kind of destructive nature theme going on - like the "debt snowball" is really a snowball packed with ice that's going to impale your credit card debt and the "debt avalanche" is going to bury your debt in a pile of who-knows-what.
The second program I'm going to look at,"Debt Avalanche", focuses on paying off high interest rate cards first instead of paying off the cards in low-high order. The premise behind this program is by paying off the higher interest cards first, you'll save money since the interest charges won't be as large.

Sounds promising. Here's my table (click to make it larger):


According to a Snowball vs. Avalanche calculator, paying down the debt in this fashion will save me $55.00 in interest. Meh. Pretty unimpressive, in my book, but I guess any savings is good savings when it all boils down, right?

In both scenarios, I'd be paying off Card 3 first, which fits in nicely with how I planned to do it anyway. So you don't have to go back to Friday's post, the plan for Card 3 is: First payment comes out on March 14 for $134.79 and I'll be paying $100.00 towards that card each month while paying the minimums on the other cards. Barring any emergencies, I'll make a double payment on the card this month and have the whole thing paid off in the next three months.

These two programs seem to encapsulate the most popular ways to pay off debts. Tomorrow, I'll look at two other options that I'm fairly certain I won't use, but we'll discuss because I like to hear myself type.

Day Sixteen Spent: $0.00
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Day Sixteen Saved: $0.00

2 comments:

  1. WOW that calculator was enlightening!! I always sort of assumed that a debt snowball would cost me more in interest than an avalanche, simply because the lowest interest rate loan is our mortgage, which is a WAY higher dollar amount than either of our student loans. But apparently we'd actually save $2463 in interest payments by snowballing instead of avalanching.

    Also a pleasant surprise: Apparently if we follow this approach faithfully (applying the payment(s) that would have gone to student loans to the mortgage once the student loans are paid off), we will be mortgage-free in just over 11 years - a whopping 16 years ahead of schedule!!

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  2. Some people feel that debt avalanche method is much better than debt snow ball method. This is because debt avalanche method helps a person to pay off debts fast. In debt avalanche method, you pay off the highest interest debt first. Once that debt is paid off, you feel good. You have paid off the biggest debt. So, now you can focus on the other debts easily.

    It is wise to use a debt avalanche calculator. This will help you know the amount you'll save through debt avalanche method. Most importantly, this will assist you to make the right decision.

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