Posted in  News   on  July 13, 2019 by  Brandon Young0
Adult Banking Blur

last updated August 3rd, 2021

The average American has $50,868 in student loan debt, $16,245 in credit card debt, $180,018 in mortgage debt, $29,058 in auto loan debt and has an average household income of $57,65231% of Americans are living pay check to pay check.

We will be focusing on debt elimination the old fashioned way. Not with debt consolidation loans or misleading credit repair websites that charge you a fee.  Instead, we will be using the debt-snowball method. This debt elimination strategy is used by paying off your smallest debts first, and only paying the minimum on your larger debts. This will allow you to free up more cash, eliminate payments and allow you to focus the extra cash from the freed up payments towards the next debt.

Close Up Debt
Without a strategy, it may feel hopeless.

We will use an example in which I have consulted with my client Anita. Anita and I have agreed, her debt is her biggest financial concern. Together we went over her budget and with the $220 remaining in her monthly budget, $110 will focus on debt reduction, and $110 will be her luxury money. 

Anita’s Debt-Snowball Repayment 

Student Loan $23,000 Total Balance / $225 Minimum Payment

Personal Loan $3000 Total Balance  / $200 Minimum Payment

Bank Card $2000 Total Balance         / $75 Minimum Payment

Store Card $1500 Total Balance        / $50 Minimum Payment

Airline Card $500 Total Balance       / $50 Minimum Payment + $110 Additional Payment 

Anita will make payments of $160 per month on her Airline Card until it is paid off and once it is completely paid, we will simply go up the ladder on her debt. Meaning the Store Card being next in line will receive a $210 payment per month. All we did was take the original $110 additional payment, the $50 we WERE paying to the Airline Card and the $50 we ARE already paying to the Store Card. Her remaining debts will only receive the minimum payment.  

Anita’s Debt-Snowball Repayment Update 

Student Loan $23,000 Total Balance / $225 Payment

Personal Loan $3000 Total Balance  / $200 Payment

Bank Card $2000 Total Balance         / $75 Payment

Store Card $1500 Total Balance        / $50 Payment + $50 Payment + $110 Additional Payment

Airline Card  $0 Total Balance 

Other methods of debt repayment focus on paying down higher interest first, however, by paying down smaller debts and increasing cash flow it will give a sense of accomplishment and small victories. It also gives an opportunity to focus the additional money on a small emergency should one arise. Use this method with discretion, for example, you may have a $2,100 capital balance at 20% interest and a $1,900 capital balance with another debt at 10% interest. It may serve you well to pay the higher interest debt since the balances are very similar. 

simple and easy.

Get a free consultation with us today!