How to realistically pay off debt

So, I am going to break it down as simple as possible as I guide you through creative ways to pay off debt using especially the snowball effect and other methods, and also show you how to get out of debt with no money and bad credit.
How to realistically pay off debt creative ways to get out of debt
Essentially implement where necessary the most effective debt payoff strategies.In a way be very wary about people who are offering to help eradicate your credit card debt or to boost your credit score points.

In a lot of cases it's going to be taking a piece of the pie, trying to get some money from you to help you get rid of the credit card bills that you already owe. Just be very careful with that when you go through this kind of debt payoff journey. 

 On average, when people graduate from college. A lot of millennial's are flooded with debt. And if you observe carefully, a lot of millennial's are going to struggle to get to retirement.

One of those reasons is because of debt, in that, it holds people back from not only starting families, and not only buying houses but it holds them back from contributing to their retirement account and also hold them back from making life decisions for their long-term future. 

Example being, saving for their kids’ college plans because they're not able to save any money as they have so much debt.

Don’t pile up debt
It is very essential to pay off debt as soon as possible. I think a lot of us know that. But there's more urgency to it than I think some people might realize. And the reason for this is because if you look at the current state of the economy a lot of economists will agree that it's doing fairly well.

Some people think that it's not doing as well as it looks on paper, but the truth is the unemployment rates the lowest it's been in a very long time, and the economy is doing pretty well, at least compared to what it was doing 10 years ago.

Embrace change

So, looking at that you think well this is good work we are doing well. “I don't worry about my debt as much’, but I just want to remind you that the economy can change very quickly and people can lose their jobs. People can get laid off. If we enter something like what we did 10 years ago people had large amounts of debt and it was fine at the moment.

Maybe that house was a little bit too big for them. Maybe they had $10,000 worth of credit card debt. But you know they were able to get by because they were making pretty good money. So, the reason you need to be very careful is because you can get laid off or lose a job suddenly, and it's a most impossible start paying off those bills.

Bankruptcy is not fun

Now let's talk about the actual strategies when it comes to creative ways to pay off debt. there are really two strategies. One of them is called the Debt Avalanche Method and the other is Debt Snowball Method, both of them are very effective.

I sort of have a preference for the one that I think is the most effective, and which mathematically makes the most sense, but we can go over each one of the strategies.

DEBT AVALANCHE

Essentially, the first strategy that you can take is what we call the debt avalanche method and what this does is essentially tackle the highest interest rate debt first. Focus on the highest interest rate instead of the highest amount owed. Let’s say you have 5 different types of debt and each one of them has a different interest rate.

Maybe the credit card interest is the highest at 23%, and you have maybe a personal loan at 16%. Then you have other type of debt like a student loan at 10% and then home mortgage at 5% and an auto loan of 4%.

What you do in this case on the avalanche method for paying off debt is you focus heavily on paying off the highest interest rate debt first.

Do away with highest interest rate debts first

DEBT AVALANCHE

Credit card
23%
$4,596
Personal Loan
16%
$6,861
Student Loan
10%
$30,038
Mortgage
5%
$82,901
Auto loan
4%
$842










Note the key to doing this with any debt payoff strategy that you ever use is, you need to make the minimum payment every month for every type of debt that you have.

As soon as you start missing minimum payments two things happen
  1. First of all, you get hit with a late fee and when that happens with credit cards you might get a 30 or $40 late fee if you skip your credit card bill. Don't do that.
  1. This can end up hurting your credit score. It could mean that you defaulted on that payment. Which means that you weren’t able to make that payment.

Budget to Pay Off Debt Spreadsheet

So, without a doubt, you need to make sure that you are making at least the minimum payments on all of your bills. First take all of the leftover money after you created a budget with a spreadsheet like Microsoft Excel or you wrote down all the expenses.

After you create the budget you found out okay, I have $300 left over at the end of the month. What should I put this money towards? After you put money towards a minimum payment first, then you take any leftover money and you focus on the highest interest rate debt first.

Then once after that highest interest rate debt first, which is probably going to be credit card debt which has 23%, then personal loans 16%; all in succession to the debt with the lowest interest rate being the last thing you have to tackle. 

How to know the interest rate on your debts

It might be personal loans or something that's very high in terms of interest rate. You can find all these interest rates by simply just calling whoever is giving you that loan or looking on their website, and checking out on your account to see how much interest you are paying.

Most people know how much payments they are making monthly, but they don’t know the interest rates on such payments.

After getting the information on your interest rates, have it written down somewhere so you can look at it. That’s the debt avalanche method, it's paying off the highest interest rate debt until it is totally gone. Once you eradicate that debt, then you have four types of debt left.

While of course paying all the minimum payments you focus on the second highest interest rate, then you focus on the third highest interest rate, you just go down the list until you have no debt left over.

What this does is, it really prioritizes for you to focus on those payments that are going to end up costing a lot more money if you let them go longer like credit card bills with 23% interest it is going to be pretty painful in the long run.

You know, a lot of people have asked me, should they focus on investing or should they focus on paying off debt– should they put money into their retirement account or should they pay off their debt because they have all these credit card bills or different types of loans.

My advice

My personal choice for this and this is not necessarily advice for you, but this is for myself. Any debt that I have that is over 5% interest rate for the year, I will focus on paying them off as much as possible.

If there is anything less than 5%, I will just pay the required monthly payment for it and not really worry about it as much because the average stock market is about 7 to 10% per year. So, in a lot of cases anything below 5% I don't really sweat that much obviously because I am still making those payments. It is not something I'm focusing on as much as those higher interest rate debt. Now that's the debt avalanche approach.

It mathematically makes more sense, but in a lot of cases people struggle to really use this effectively because they can get discouraged. It's difficult to make it actually work and to start to really see progress.

The other method is called the

DEBT SNOWBALL APPROACH TO PAYING OFF DEBT

The idea here is that, say you have five different types of debt, let’s use same example like what we just used above, but instead of focusing on the highest interest rate debt first we are going to instead focus on the lowest payment.

Focus on the lowest payment

DEBT SNOWBALL

Credit card
23%
$4,596
Personal Loan
16%
$6,861
Student Loan
10%
$30,038
Mortgage
5%
$82,901
Auto loan
4%
$842










So, let's say that between these five different types of debt, the lowest balance debt is going to be your auto loan you only owe $842 more on this auto loan.
You just focus as much as you can, while of course paying off all of your minimum payments on all types of five debts every month. 
Then you focus on the lowest balance first and then you move on to the second lowest balance.

What this does is it allows people to sort of eradicate different types of debt faster than maybe what you could do with the debt avalanche approach. This kind of lets people see some progress because, after a few months they suddenly only have four different bills to pay and then after a few more months maybe only of three different bills that they pay. So, you are certain to see a lot more progress.

Debt Snowball Downside Compared with Debt Avalanche

Mathematically it doesn't make as much sense because you might be paying more in interest over the course of your debt payoff journey, but psychologically it can make a lot more sense and a connection can be more effective for some people, especially if you struggled with paying off bills in the past.

My advice
I think the debt snowball method would likely be a pretty good route for you. And you know like I know, they can be difficult to do if you are tied up in several debts. I am kind of making it sound easy by just saying you can achieve that if you focus on it.

Conclusion
If you are still struggling with making a dent in and paying off debt, then you have to find a way to make more money and it's very possible.


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How to realistically pay off debt
creative ways to pay off debt using especially the snowball effect and other methods, and also how you can essentially implement where necessary the most effective debt payoff strategies.
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