If you have a certain amount of money available to pay off a portion
of your debt each month, even if that certain amount changes, there is
a mathematically correct way of paying off that debt. You can call this
approach the Debt Avalanche. It is similar to Dave Ramsey’s popular “debt snowball” method, with one small but important detail: With the Debt Avalanche you will pay off your debt faster and pay less total interest to banks and lenders.
The simple calculation for the Debt Avalanche
requires only the interest rates for each debt account. This assumes
that all debt accounts have the same tax liability, but if that’s not
the case, determine your interest rate after taxes for this calculation.
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When my husband and I got married, we purposed to stay out of debt if at all possible while he went through law school. Now that law school is behind us and we’ve avoided debt this long, we’re really determined to completely avoid debt in every way, shape, and form for the rest of our lives.
We’ve sought to debt-proof ourselves through a number of means: living on less than we make; living on a strict budget; building a six-month emergency fund; communicating openly and honestly as a husband and wife about finances; and investing in good life, health, and disability insurance. Only God knows whether we’ll be able to completely avoid debt our entire lives, but we are quite determined to do everything we can to keep from being enslaved to it.
While you all well know that I am a huge Dave Ramsey fan, since I’ve never been in debt, I personally can’t say what works or doesn’t work with regards to getting out of debt. And I don’t necessarily think the same exact steps will work 100% perfectly for each and every person and situation.
So, what do you think? I know a number of you readers are seeking to get out of debt and I’d love to hear what is working for you. Do you think that Dave Ramsey’s "Debt Snowball" method is the method for debt reduction? Or would you agree more with Consumerism Commentary’s proposed "Debt Avalanche"? What has worked for you?
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