26 Aug Strategies you can use to eliminate debt
I have been emphasize a lot about getting out of debts or becoming debt free and in this post I would like to discuss some strategies to eliminate debt. Unfortunately in our world today, I would say majority of us are in debt in 1 way or another. Have started my coaching for sometime now and 1 of the common questions asked is I’m currently in debt, is there strategies to eliminate debt faster? Unfortunately, my answer is no and is all through hardwork. Unless you are the type of person which relies on jackpot to help you clear your debt then its a different story altogether.
In general there are a couple of common strategies being preached on how to get out of debts that I would want to share:
1) Debt avalanche
2) Debt snowball
3) Debt consolidation
4) Debt snowflakes
1) Debt avalanche is the most commonly used strategy that most of us is aware of. Basically how this strategy work is we will need to pay off the debt with the highest interest interest rate first and then move on to the next one:
Pros : “Mathematically” this is the right way as the one with the highest interest rate will pull us back
Cons : Unfortunately if all of us are mathematically sound, we wont be owing credit card as their interest rate one of the highest? But yet we do so?
2) Debt snowball. This is a method developed Dave Ramsey which is also the method I used during coaching. How this method work is you are required to pay off the debt with the least amount regardless of the interest rate:
Pros : Its all about psychology. When you see your numbers of debts coming down, you have the momentum to start eliminate debt and see it going down 1 after the other. This will increase your spirit knowing that it is possible to become debt free 1 day
Cons : “Extra money” will be used to pay interests
3) Debt consolidation is widely preach by the banks where you are encourage to merge all your debts into one big debt.
Pros : In some cases, you can get a better interest rate by merging all of them into 1. Maybe it looks “nicer” too to have 1 debt instead of having 7 debts
Cons : We did not resolve the root cause. Its just moving debts around but yet the problem remains there. Our goal is to eliminate debt and not moving 1 place to the other
In fact, I shouldn’t list debt snowflakes as a separate strategy but rather its a strategy that can complement the rest of the strategies. What debt snowflakes do is actually put all the small amount you have saved into your loan. For example, you have saved some money from a shopping discount. Use the savings that you had and put into loan. You may also got a freelance job during the weekends. Instead of going for a nice meal after money have been collected, use it to pay off your debt.
So regardless which strategy you would like to apply to eliminate your debt, trust me when you are debt free, the hardwork you have done is worth it. Regardless which strategy suites you, I will continue to advise people to stay out of debt or at least, in an area you have comfortable with. I totally understand about leverage & OPM (Other People’s Money) but again we need to be smart about it. If you are over in debt and coming out of that hole, it will waste you a lot of time which you can use to create more wealth.
DEBT IS A ROADBLOCK TO YOUR FINANCIAL FREEDOM!!