{"id":539,"date":"2023-09-03T18:58:25","date_gmt":"2023-09-03T22:58:25","guid":{"rendered":"https:\/\/pressbooks.bccampus.ca\/financialfreedomfortrades\/?post_type=chapter&#038;p=539"},"modified":"2024-11-28T17:31:02","modified_gmt":"2024-11-28T22:31:02","slug":"strategies-to-attacking-debt","status":"publish","type":"chapter","link":"https:\/\/pressbooks.bccampus.ca\/financialfreedomfortrades\/chapter\/strategies-to-attacking-debt\/","title":{"raw":"Strategies to Attacking Debt","rendered":"Strategies to Attacking Debt"},"content":{"raw":"Having a game plan to eliminating debt will assist in the journey towards saving for the future and meeting any financial goals.\u00a0 Before selecting a strategy to confronting your debt load, it\u2019s important to make a full listing of all the debt that an individual has.\u00a0 This would include mortgages, credit card balances, unpaid bills, and even taxes owing.\r\n\r\nFor each identified debt, note the following terms:\r\n<ul>\r\n \t<li>Total amount owing, separated into principal balance and interest<\/li>\r\n \t<li>Minimum monthly payment<\/li>\r\n \t<li>Interest rate (APR)<\/li>\r\n<\/ul>\r\nThere are two popular strategies to eliminating debt as fast as possible: debt snowball method and debt avalanche method.\u00a0 Both approaches are accelerated debt repayment plans, in which any excess funds are applied against debt repaying more than the minimum payment amount requirements.\r\n\r\n&nbsp;\r\n\r\n<em>Debt Snowball Method<\/em>\r\n<ul>\r\n \t<li>The debt snowball method will prioritize abolishing the debts with the smallest amount owing. An individual should make minimum payments on all outstanding debt, and then apply any excess funds for debt repayment to the outstanding balance that has the smallest principal balance.\u00a0 This method will psychologically motivate an individual to stay on the strategy course of repaying debt as one will see results faster.\u00a0 There will be less number of debts to deal with in a shorter period of time, as the smaller amounts owing are off the plate faster.\u00a0 However, the debt snowball method will cost more overall in interest payments than the debt avalanche method described next.<\/li>\r\n<\/ul>\r\n&nbsp;\r\n\r\n<em>Debt Avalanche Method<\/em>\r\n\r\nThe debt avalanche method will prioritize abolishing the debts with the highest interest rates first.\u00a0 An individual should make minimum payments on all outstanding debt, and then apply any excess funds for debt repayment to the outstanding balance that has the highest interest rate.\u00a0 This method will have the most savings on interest payments, as higher interest rate debt is eliminated first.\r\n\r\n&nbsp;\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>Debt Snowball Method<\/td>\r\n<td>Debt Avalanche Method<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Focuses on eliminating debt with smallest balances<\/td>\r\n<td>\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Focuses on eliminating debt with higher interest rates<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Once smallest debt paid off, move to next larger principal balance of debt<\/td>\r\n<td>\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Once highest interest rate debt paid off, move to next highest interest rate debt<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Psychologically better as reduces the number of debts on hand<\/td>\r\n<td>\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Mathematically better as pay less interest<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n<div class=\"textbox textbox--examples\"><header class=\"textbox__header\">\r\n<p class=\"textbox__title\">Example: Debt Snowball Method<\/p>\r\n\r\n<\/header>\r\n<div class=\"textbox__content\">\r\n<ul>\r\n \t<li><\/li>\r\n<\/ul>\r\n<\/div>\r\n<\/div>\r\n&nbsp;\r\n<div class=\"textbox textbox--examples\"><header class=\"textbox__header\">\r\n<p class=\"textbox__title\">Example: Debt Avalanche Method<\/p>\r\n\r\n<\/header>\r\n<div class=\"textbox__content\">\r\n<ul>\r\n \t<li><\/li>\r\n<\/ul>\r\n<\/div>\r\n<\/div>\r\n&nbsp;\r\n\r\n<em>Consolidation of debt<\/em>\r\n\r\nAt times, it may be a good idea to apply for a loan with a lower interest rate to pay off multiple debts that are at higher interest rates.\u00a0 This is referred to as consolidation of debt, where an individual only needs to make one payment to a debt collector instead of paying out each and every separate lender.\r\n\r\n&nbsp;\r\n\r\n<em>Avoid taking on more debt<\/em>\r\n\r\nIn any strategy towards being debt-free, it is imperative that one not take on any further debt loads.\u00a0 Any additional debt will influence:\r\n<ul>\r\n \t<li>Any already current debt payments<\/li>\r\n \t<li>The budget<\/li>\r\n \t<li>The ability to save for the future<\/li>\r\n \t<li>An individual\u2019s credit score<\/li>\r\n<\/ul>\r\n&nbsp;","rendered":"<p>Having a game plan to eliminating debt will assist in the journey towards saving for the future and meeting any financial goals.\u00a0 Before selecting a strategy to confronting your debt load, it\u2019s important to make a full listing of all the debt that an individual has.\u00a0 This would include mortgages, credit card balances, unpaid bills, and even taxes owing.<\/p>\n<p>For each identified debt, note the following terms:<\/p>\n<ul>\n<li>Total amount owing, separated into principal balance and interest<\/li>\n<li>Minimum monthly payment<\/li>\n<li>Interest rate (APR)<\/li>\n<\/ul>\n<p>There are two popular strategies to eliminating debt as fast as possible: debt snowball method and debt avalanche method.\u00a0 Both approaches are accelerated debt repayment plans, in which any excess funds are applied against debt repaying more than the minimum payment amount requirements.<\/p>\n<p>&nbsp;<\/p>\n<p><em>Debt Snowball Method<\/em><\/p>\n<ul>\n<li>The debt snowball method will prioritize abolishing the debts with the smallest amount owing. An individual should make minimum payments on all outstanding debt, and then apply any excess funds for debt repayment to the outstanding balance that has the smallest principal balance.\u00a0 This method will psychologically motivate an individual to stay on the strategy course of repaying debt as one will see results faster.\u00a0 There will be less number of debts to deal with in a shorter period of time, as the smaller amounts owing are off the plate faster.\u00a0 However, the debt snowball method will cost more overall in interest payments than the debt avalanche method described next.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><em>Debt Avalanche Method<\/em><\/p>\n<p>The debt avalanche method will prioritize abolishing the debts with the highest interest rates first.\u00a0 An individual should make minimum payments on all outstanding debt, and then apply any excess funds for debt repayment to the outstanding balance that has the highest interest rate.\u00a0 This method will have the most savings on interest payments, as higher interest rate debt is eliminated first.<\/p>\n<p>&nbsp;<\/p>\n<table>\n<tbody>\n<tr>\n<td>Debt Snowball Method<\/td>\n<td>Debt Avalanche Method<\/td>\n<\/tr>\n<tr>\n<td>\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Focuses on eliminating debt with smallest balances<\/td>\n<td>\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Focuses on eliminating debt with higher interest rates<\/td>\n<\/tr>\n<tr>\n<td>\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Once smallest debt paid off, move to next larger principal balance of debt<\/td>\n<td>\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Once highest interest rate debt paid off, move to next highest interest rate debt<\/td>\n<\/tr>\n<tr>\n<td>\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Psychologically better as reduces the number of debts on hand<\/td>\n<td>\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Mathematically better as pay less interest<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<div class=\"textbox textbox--examples\">\n<header class=\"textbox__header\">\n<p class=\"textbox__title\">Example: Debt Snowball Method<\/p>\n<\/header>\n<div class=\"textbox__content\">\n<ul>\n<li><\/li>\n<\/ul>\n<\/div>\n<\/div>\n<p>&nbsp;<\/p>\n<div class=\"textbox textbox--examples\">\n<header class=\"textbox__header\">\n<p class=\"textbox__title\">Example: Debt Avalanche Method<\/p>\n<\/header>\n<div class=\"textbox__content\">\n<ul>\n<li><\/li>\n<\/ul>\n<\/div>\n<\/div>\n<p>&nbsp;<\/p>\n<p><em>Consolidation of debt<\/em><\/p>\n<p>At times, it may be a good idea to apply for a loan with a lower interest rate to pay off multiple debts that are at higher interest rates.\u00a0 This is referred to as consolidation of debt, where an individual only needs to make one payment to a debt collector instead of paying out each and every separate lender.<\/p>\n<p>&nbsp;<\/p>\n<p><em>Avoid taking on more debt<\/em><\/p>\n<p>In any strategy towards being debt-free, it is imperative that one not take on any further debt loads.\u00a0 Any additional debt will influence:<\/p>\n<ul>\n<li>Any already current debt payments<\/li>\n<li>The budget<\/li>\n<li>The ability to save for the future<\/li>\n<li>An individual\u2019s credit score<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n","protected":false},"author":1780,"menu_order":5,"template":"","meta":{"pb_show_title":"on","pb_short_title":"Strategies to Attacking Debt","pb_subtitle":"","pb_authors":["anne-lee"],"pb_section_license":"cc-by-nc-nd"},"chapter-type":[48],"contributor":[61],"license":[58],"class_list":["post-539","chapter","type-chapter","status-publish","hentry","chapter-type-standard","contributor-anne-lee","license-cc-by-nc-nd"],"part":159,"_links":{"self":[{"href":"https:\/\/pressbooks.bccampus.ca\/financialfreedomfortrades\/wp-json\/pressbooks\/v2\/chapters\/539","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/pressbooks.bccampus.ca\/financialfreedomfortrades\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/pressbooks.bccampus.ca\/financialfreedomfortrades\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/financialfreedomfortrades\/wp-json\/wp\/v2\/users\/1780"}],"version-history":[{"count":3,"href":"https:\/\/pressbooks.bccampus.ca\/financialfreedomfortrades\/wp-json\/pressbooks\/v2\/chapters\/539\/revisions"}],"predecessor-version":[{"id":1393,"href":"https:\/\/pressbooks.bccampus.ca\/financialfreedomfortrades\/wp-json\/pressbooks\/v2\/chapters\/539\/revisions\/1393"}],"part":[{"href":"https:\/\/pressbooks.bccampus.ca\/financialfreedomfortrades\/wp-json\/pressbooks\/v2\/parts\/159"}],"metadata":[{"href":"https:\/\/pressbooks.bccampus.ca\/financialfreedomfortrades\/wp-json\/pressbooks\/v2\/chapters\/539\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/pressbooks.bccampus.ca\/financialfreedomfortrades\/wp-json\/wp\/v2\/media?parent=539"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/financialfreedomfortrades\/wp-json\/pressbooks\/v2\/chapter-type?post=539"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/financialfreedomfortrades\/wp-json\/wp\/v2\/contributor?post=539"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/financialfreedomfortrades\/wp-json\/wp\/v2\/license?post=539"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}