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Avalanche vs Snowball: Which Debt Payoff Method Is Best? - YouTube
Channel: Clark Howard: Save More, Spend Less
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are you fed up with your debts and you
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want to get rid of them I'm Clark Howard
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I'm going to show you how to take those
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debts down I'm going to show you how to
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calculate step by step how long it'll
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take you to become debt free first
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you've got to make a list of all your
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debts not just the balance you've got to
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have the interest rate debt by debt so
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that's key because there are two main
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methods that are recommended for you to
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attack your debts till you pay them off
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one of them I call a Turing often other
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people will call it the Avalanche method
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the other is called snowball the idea of
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each is that you figure out how much you
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owe
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with snowball you take the smallest debt
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on down to the largest debt with my
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method laddering you take the highest
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interest rate on down to the lowest
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interest rate the idea with either is it
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depends on your psychology how you feel
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better because the idea of snowball is
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by attacking your smallest at first you
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feel like hey I went from owning eight
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people money now I only owe 7 and on
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like that but mathematically you pay off
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debt quicker if you do the latter emetic
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where you pay minimums on all your debts
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except the one with the highest interest
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rate till you wipe it out and then you
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go to the next step down the list there
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are calculators available to you where
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you can put in your exact debts your
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exact interest rates and you'll see how
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long it'll take you to go from owing all
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these people money to being completely
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debt free once you've decided that you
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want to get debt-free it's great to see
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how the numbers are actually going to
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play out that's why I love this this
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calculator you can use unvaried us
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because with it you put in your exact
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loans that you have the loan type the
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balance you have
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minimum payment they require and the
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interest rate that loan covers the key
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to you getting out of debt
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is don't let the lenders manipulate you
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they always state a minimum monthly
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payment that stretches out your loan as
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far as possible and earns them the most
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interest costs you the most money so I
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have examples for you and I kept them
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really simple a student loan with the
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balance of ten thousand minimum payment
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three hundred a month an interest rate
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of five percent a credit card with a two
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thousand dollar balance minimum payment
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a hundred bucks interest rate of
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seventeen percent which is the average
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interest rate in the country right now
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in an auto loan with a five thousand
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dollar balance during $50 minimum
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payment and an interest rate of 6%
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that's maybe a little cheaper than
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average but you know you could possibly
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have that and then it gives you what
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your total minimum payments would be for
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those added together which is six
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hundred and fifty bucks but the whole
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idea don't pay minimums that's what all
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these people want you to do so that your
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payment stretch the total interest you
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pay goes up and up and up I want you to
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resolve to pay more than the minimum so
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in the example I have here stead of
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paying your 650 a month to these bills I
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got you're paying a thousand yeah that's
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right I want you to tighten the spending
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belt so you can put more money towards
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your debt if you do the latter amad also
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known as avalanche this calculator shows
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how quickly you pay off your debt the
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other interesting thing is that if you
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do the latter inori Vilanch method
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instead of snowball where snowball
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you're attacking the debt with the
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smallest balance you significantly
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reduce the total amount of debt you'll
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pay by doing Lateran or avalanche versus
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doing snowball typically you'll reduce
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your overall interest that you pay by
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ten percent or more by attacking the
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highest interest rate debt is solidly as
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you can and then work your way down to
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the
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highest interest rate and then you
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finish paying off your debts with the
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lowest interest rate last once you've
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been paying down debt for six months you
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see a significant decline in your
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overall balances and every dollar you
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pay from then forward so heavily goes
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towards the principal you owe instead of
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just servicing interest and you can see
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these numbers for your exact situation
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and then once you got them just get it
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done
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it really doesn't matter what method you
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choose there's even one where you mix
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and match that sometimes this is
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referred to as Blizzard not like a Dairy
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Queen the whole idea is whatever method
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you come up with that puts you on a path
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where you feel the progress where you
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have an end date in mind that you're
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going to be debt-free that's core and
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key and remember this works best when
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you come up with an amount beyond the
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minimums you owe to everybody and you
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pay consistently more than that minimum
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every month and if you can pay this same
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amount every month even better because
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you can perfectly track when you are
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going to be completely debt-free and
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that's the goal I love community where
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we all help each other and that's why we
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have our ditch your debt page on
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Facebook where we all support each other
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and by the way if you enjoyed this video
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like it and you can subscribe to our
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YouTube channel and for more info for
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your wallet check out Clark com
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