Pay Off Debt FAST (Snowball Method vs Avalanche Method)

We all know that debt in America has
gotten a little bit out of hand. There’s over a trillion dollars in student loan
debt which if you are a millennial or part of Gen Z you know that one all too
well. There’s almost $4 trillion or maybe a little bit over $4
trillion in consumer debt and the government itself is in debt. So if
it’s such a common thing, why is nobody talking about it?
I’m Suzanne with Arvabelle and in this video I’m going to give you a few
different tips and a couple of different methods that you can use to actually
start paying off your debt. If you find this video helpful remember to hit that
like button. This isn’t really anything groundbreaking, it’s just pretty hard to
find free information about managing your own finances and we are trying to
change that. So if you are interested in seeing more videos on personal finance,
entrepreneurship, and just navigating life as a young adult in general,
consider subscribing to the channel. I also have to make the disclaimer that I
am in no way a financial advisor this is just general information and if you do
need help with your finances always go and ask a professional. So first we need
to address that there are actually two types of debt. There’s good debt and
there is bad debt. Good debt is debt that is taken out with the purpose of
increasing your net worth or generating extra cash flow. So an example of people
who would use good debt would be real estate investors. They are taking out
loans in order to buy properties that will increase their net worth as well as
generate extra income for them. But that’s not the debt that we are going to
be talking about. We are going to be talking about bad debt. This is your
average consumer debt. So this would be things like credit card debt, excessive
student loans, car loans, those furniture financing offers, payday loans, things of
that nature. The goal of getting out of debt is to really take on more financial
freedom and have the ability to focus your time and money on things that
matter to you now instead of paying off things that you took out loans for 5 or
10 or 20 years ago. So here are a few tips that will sort of help you lay out
your plan for paying off your debt as well as help you eliminate a couple of
problems that could come up as you are going on your debt free journey. For
each loan or debt amount that you have, it helps to actually know when you are
going to be able to pay that off. Take your minimum or your average payment
that you are making or that you’re supposed to be making, and calculate the
number of payments that you have left and the number of months that that would
take. After you do that for each individual one, calculate the month and
the year that you would be completely debt free. Figure out the exact date if
at all possible. Having that date in mind will really
help as a motivational tool because if you are putting in that extra effort and
that extra money towards paying off your debt, you’ll start to see that debt free
date move closer and closer which means that you are just that much closer to
being financially free. So let’s talk about credit cards. Now I am all for
credit cards and as I say that Dave Ramsey is somewhere in the world
throwing his computer out the window. But credit card rewards, cashback, all of that
good stuff, I’m all for it. However credit cards only work in your favor if you are
using them responsibly. If you’re mostly in consumer debt and you know for a fact
that credit cards are a problem for you get rid of them. Now you may not actually
want to go and close the credit card accounts, because that actually hurts
your credit score. But get them out of your physical and digital possession – and
that one, getting them out of your digital possession is very important. So
hide them lock them away but most importantly I want you to pause the
video and do this right now – disconnect your credit card from all of
your online stores. That means Amazon. Not having that one-click buying option will
make it a lot easier to resist making purchases when you are browsing Amazon
at 3:00 a.m. As far as actually paying off your debt goes, you want to try to
make extra payments when you can. This one is sort of self-explanatory, but the
more that you contribute towards paying off your debt, obviously the faster that
you are going to pay it off. Now paying it off quickly also makes it cheaper for
you in the long run because you are reducing the total amount of interest
that you are having to pay on that loan amount or on
that debt amount. Making extra payments now is going to save you money later. And
the last tip which is going to be kind of a touchy subject is that you may just
need to make more money to be able to pay off your debt. And I know that that
is – I know for a fact – that that is much easier said than done, but I do want to
make a point here. There is so much of the debt free community especially on
YouTube and on social media that’s almost obsessed with just
budgeting budgeting budgeting and cutting back. And I agree completely you
do need to have a budget and you do need to be factoring in your debt payments
into your budget, however there is a problem with only focusing on budgeting
and cutting back. There’s this saying that you can’t squeeze a dollar out of a
nickel and that is very true. The bottom line is that if over the course of a
year you are trying to pay back $40,000 of debt but you’re only making $20,000 there is no way that you can make those two numbers line up
unless you are bringing in more money. So this may mean switching to a higher
paying job, getting a raise, starting a side hustle, whatever it is to bring in
more money. And again it’s much easier said than done, but you just have to be
realistic with your goal and be realistic with how much you are able to
pay off in a year based off of your income. And it’s also very important to
not compare your finances with someone else’s because there are all of these
like success stories of people who pay off $80,000 in two years
or in one year or whatever it is and again you may not be able to pay off
$80,000 in one year or two years if you’re making $20,000. So now that we have those out of the way, let’s talk about
two actual methods that you can use to start paying off your debt and that
would be the snowball method and the avalanche method. The snowball method is
where you start paying off your debt based on the total balance amount so you
would do it in order from lowest amount to highest amount. You would pay off the
lowest balance, cross that one off completely, move on to the next lowest
balance, and keep going until all of your debt is paid off. So for example if you
had $7,000 in credit card debt, a $5,000 car
loan, and $16,000 in student loans, you would first
start with the lowest amount so the $5,000 car loan then, you would move on
to the credit card, then you would move on to the student debt. Ultimately this
method is not going to be the one that saves you the most money in the long run,
but it may be the method that you are able to stick to better simply because
it’s just a nice psychological thing. By completely getting rid of those smaller
debt amounts, you just you get to cross those off your list completely and never
deal with them again. And that can be really encouraging to see the progress
that you’ve made and to see how much you’ve reduced the number of debt
payments that you have to make. The second method is the avalanche method
which is where you would pay off your debt in order of interest rate from
highest to lowest. This method is going to save you more money than the snowball
method simply because of the amount of interest that you’re paying down. But a
lot of people find it harder to stick to especially if you have a lot of debt
that is at a high interest rate because it can take a while to start
chipping away at that big number. So it may not be as easy or as satisfying to
see your progress. So we’ll use the same numbers but include the interest rates
this time. So let’s say that that $7,000 of credit card debt has an interest
rate of 20%. You have the $5,000 car loan at 4%. And you have the $16,000 in
student loans at 7%. Using the avalanche method, you would pay off the
amount that has the highest interest rate so that would be the credit cards
that you would tackle first. Then you would move on to student loans, and then
you would move on to that 4% car loan. If you can manage to do the
avalanche method it will save you more money and it will probably be better for
you, but if it’s just not working and you need to have those little milestones of
crossing off the smaller amounts of debt use the snowball method. Just use
whichever one works for you, it doesn’t really matter how you do it, it just
matters that you are paying off your debt. These are really the two most
common ways to pay off debt and again it’s nothing like particularly
revolutionary but it’s important to talk about and it’s important that you start addressing your debt. The worst thing that you can do is to just
ignore your debt completely and sort of cover your eyes while you dig yourself
further and further into debt. Once you are able to actually become debt free,
that allows you to have a lot more financial freedom.
You can then start increasing your net worth, you can start investing, and you
can just – you can just start focusing on things that are more exciting than debt.
Because debt is like, it’s not fun! It’s really boring. It’s things that you have
already bought, that you’ve already done, and you’re still paying for them now. So
avoid debt in the future. If you are on a debt free journey and you really just
have no idea where to start I am going to leave a link in the description to
Dave Ramsey’s book the Total Money Makeover. It really is a great place to
start. Now if you are a millennial or you are part of Gen Z some of Dave Ramsey’s
ideas…I don’t want to say that they’re outdated…but they’re a little bit
outdated some of them. So just keep in mind that you want to approach your debt
in whatever way works for you don’t just blindly follow what other people are
saying and you also don’t have to pay off your debt exactly how someone else
has paid off theirs. Just do whatever works for you. So if this video was
helpful remember to hit the like button and subscribe to the channel. Good luck
with your debt free journey, and I will see you next time.

26 comments on “Pay Off Debt FAST (Snowball Method vs Avalanche Method)”

  1. Passive Income Tom says:

    Nice! 👍I took Dave Ramsey's financial peace a few years ago.

  2. Save Like a Pro with Leah says:

    Super informative! Thanks for sharing my friend! God bless you…

  3. Ryan Giffin says:

    Im so close to being debt free outside of my mortgages (by then end of the year). Almost gave a car paid off and student loan. Glad I didn’t wait to pay off debt before investing.

  4. Mike Moore says:

    Congrats on the sub snowball method. Almost 250 already. Congrats. So awesome!

  5. Chris Invests - Personal Finance Videos says:

    Not sure which one I would use but thankfully I don't have to decide. Are you on a weekly upload schedule?

  6. Sean Lei - Money & Minimalism says:

    Logically avalanche > snowball but I love how rewarding the small wins are!

  7. Jackie Collins says:

    Amazing explanation and I loved all those intro facts you gave about student loan debt. Oohh the comparing your finances point had me clapping 👏and saying "say that again" to the phone 😂 the worst you can do is ignore your debt!!!

  8. Daniel Iles - Small Business says:

    Avalanche just make sense for me since I really like looking at problems quantitatively but all of my clients have used snowball religiously.

  9. Adventures and Us - Investing and FIRE Movement says:

    Hahahah Dave Ramsey… the nerd in me wants to ask what kind of processor that computer he threw out had

  10. Full Wealthy Life - Shari Kaye says:

    Consumer debt holds us back. Keep the conversation going! Debt free is the way for me.

  11. RicoSuave Investing says:

    Oh 😮 so all I have to do is make more money! I had no idea lol. Just kidding. Yes, the snowball is the best way and the one that worked for me. No credit cards here. Thanks for sharing! 🙂

  12. Mike's Personal Finance says:

    Definitely support the avalanche method. Credit card debt should be as Mr. Money Mustache would say "A hair on fire" situation. Get rid of it lol. 20%+ interest can be crazy though it could usually be rolled into a 0% intro rate on a new card while being payed down. Congrats on the channel growth!

  13. Kirin Nguyen - Personal Finance says:

    I prefer the debt avalanche method. I want to save as much money as possible!

  14. Hassan's Investing journey says:

    I'm not a fan of any debt good or bad. I just like to pay it off as quickly as possible.

  15. CitizenOfTheYear says:

    I will be done paying off student loans this month! I tried to pay off those with higher interest rates first.

  16. Quest to FIRE says:

    Excellent advice!! Listen up beginners- personal finance is personal! You CAN make a plan that will suit your individual needs. 🧡🧡🔥🔥🔥🔥

  17. Creative 7 Inc says:

    insane to think about such a large number!

  18. Creative 7 Inc says:

    Definitely a great idea to start early, and always keep to it. that interest can cause an extended timeline on pay-offs so easily

  19. Alyssa Vierneza says:

    Thank you so much for this! I think it’s just easier for me to do the snow ball and the little wins help. Either way, you’re so right about just doing something about it and not pretending it isn’t there!

  20. SamT says:

    Great info. Sometimes when the heat is up, its tough to stick to plan…It also depends on who is knocking your door hardest

  21. Naam Wynn - Personal Finance & Investing says:

    I definitely prefer the avalanche method!

  22. Crystal Ababon says:

    Awesome job! Thank you for the tips!!

  23. The People's Bookkeeper says:

    Awesome channel Arvabelle! Really nice lighting/edits! Liked! 🙂

  24. BLABoss says:

    Great tips! Thanks for sharing!

  25. The Financial Freedom Diary says:

    Great advice! I'm glad I watched this video. Sent from Alicia Does Adulting. I recalculate my payoff date every 6 months.My mom used to say you can't get blood from a turnip. LOL!

  26. Budgeting With Aly says:

    Some excellent tips and explanations! Thank you for sharing!

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