If you have heard about Dave Ramsey you’ve heard him talk and praise about the debt snowball. The debt snowball is when you pay off debt from lowest monthly payment to highest and disregard the interest.
There is another known way of paying off debt called the avalanche method. That is when you pay your highest interest rate debt and disregard monthly payment.
But which one is more time efficient? Let’s find out!
The following are random amounts and interest rates to give a good idea on the time it will take to pay off the most common kind of debt.
The debt:
Credit card:
Amount: $8,000
monthly payment: $264
interest rate 15%
Student loan
Amount: $10,000 For 10 years
Monthly amount: $88
Interest rate: 6%
House loan
Amount: $9,000 for 6 months
Monthly amount: 125
Interest rate: 0%
Car loan
Amount: $15,000 for 5 years
Monthly amount: $262
Interest rate: 5%
Student loan: ~4 years
House loan: ~3 months
Car loan: ~2 years
Credit card: paid off within the first 4 years
So with the examples I gave, all the debt was paid off in 6 years and 3 months, and that’s with adding $100 a month. If you want the debt to be gone sooner you would add more if you’re able too, like tax refund, birthday/holiday money (if your family does that). In the top example the credit card was paid off while we were paying off the student loan debt which was interesting. Now let’s see how the avalanche method works.
Credit card: ~ 2 years
Student loan: ~1.3 years
Car loan: ~6 months
House loan: paid off while paying off credit card
So with this example it would take us about 3.9 years to pay off the same amount of debt. This may not be exactly your situation and these are random numbers and interest amounts. I also may have done math wrong as well. But these are just examples not real life. The same amount of time will have gone by give or take a few years.
So, at the end of the day the snowball method would take 6 years and 3 months and the avalanche method would rake 3 years 9 months. In both examples at least one of the debts were paid off within the time of paying off the previous debts. Keep in mind, you should still be paying the monthly payments for your other debts and not just stop paying, that be foolish!
I hope this information was helpful! This may not be the case for everyone, so if you do the math for yourself tweet me @DitchinDebt and let me know the differences for you!
There is another known way of paying off debt called the avalanche method. That is when you pay your highest interest rate debt and disregard monthly payment.
But which one is more time efficient? Let’s find out!
The following are random amounts and interest rates to give a good idea on the time it will take to pay off the most common kind of debt.
The debt:
Credit card:
Amount: $8,000
monthly payment: $264
interest rate 15%
Student loan
Amount: $10,000 For 10 years
Monthly amount: $88
Interest rate: 6%
House loan
Amount: $9,000 for 6 months
Monthly amount: 125
Interest rate: 0%
Car loan
Amount: $15,000 for 5 years
Monthly amount: $262
Interest rate: 5%
Debt snowball method:
If we were to do the debt snowball method, the order would be student loans, house loan, car loan and then credit card. Here is the time it would take to pay off each debt if we were doing the snowball method. Let’s say this person added $100 to the first debt because they did their budget and found some extra money they could save.Student loan: ~4 years
House loan: ~3 months
Car loan: ~2 years
Credit card: paid off within the first 4 years
So with the examples I gave, all the debt was paid off in 6 years and 3 months, and that’s with adding $100 a month. If you want the debt to be gone sooner you would add more if you’re able too, like tax refund, birthday/holiday money (if your family does that). In the top example the credit card was paid off while we were paying off the student loan debt which was interesting. Now let’s see how the avalanche method works.
Avalanche method:
In this example I’m giving the same $100 to add to the monthly amount.Credit card: ~ 2 years
Student loan: ~1.3 years
Car loan: ~6 months
House loan: paid off while paying off credit card
So with this example it would take us about 3.9 years to pay off the same amount of debt. This may not be exactly your situation and these are random numbers and interest amounts. I also may have done math wrong as well. But these are just examples not real life. The same amount of time will have gone by give or take a few years.
So, at the end of the day the snowball method would take 6 years and 3 months and the avalanche method would rake 3 years 9 months. In both examples at least one of the debts were paid off within the time of paying off the previous debts. Keep in mind, you should still be paying the monthly payments for your other debts and not just stop paying, that be foolish!
I hope this information was helpful! This may not be the case for everyone, so if you do the math for yourself tweet me @DitchinDebt and let me know the differences for you!
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