If you have incurred a huge amount of debt load and you cannot arrange your monthly payments every month, then you can seek help of the debt avalanche method to pay off debt. This method of paying off debts is almost similar to the snowball method but it differs from it with one small and important detail. With the debt avalanche method, you can pay off your debts faster and pay less interest rate to your banks or lending institutions. Read on to know the steps of repaying your debts with the avalanche method.
1.Order your debts from highest interest rate to lowest: You may have been handling multiple credit cards and if it is, you need to order your debts according to the highest interest rate to the lowest. Watch out for promotional rates ending which they may do on the date promised when you enrolled or earlier than that. Also note that if your credit improves, it will not lower your interest rates magically. Order your lists from the highest interest rate to the lowest. This way you can pay off debt faster.
2.Pay the minimum amount to all debts every month: Make a list of all the minimum monthly payments due on all your credit cards. This is the amount that you need to pay towards each debt except for the one that has been listed on top. Also make sure that you make a list of the due date if it is relatively static from month to month. Your payments should always reach the credit card company within the due date.
3.Send all available cash to the debt with the highest interest: If you have got an emergency fund, then take help of it. Withdraw money from your emergency fund and try using that money in paying off the highest debt amount. Try to save money from your monthly income and try paying off debts. All the cash available should be dedicated towards the account with the highest interest rate.
4.Repeat this every month: Once you are able to pay off an entire account, repeat this process every month. Again make a list of the second account with the highest interest rate and start putting in all your efforts to eliminate that debt too.
This avalanche method is mathematically the best method of paying off your personal debt. No other method can get you out of debt and save your money at the same time. Thus follow the above mentioned steps to pay off debt and lead a stress free life.
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