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Generic Debt Reduction Approaches Could Be Costing You Thousands

Updated: Dec 2, 2022

Let's be clear, any type of effort to reduce high interest debt is good. However, generic approaches to reducing your debt can cost you thousands overtime.

There are several types of generic debt reduction strategies but those commonly known include the snowball and the avalanche method.

The Snowball Method

The snowball method first involves collecting a list of all outstanding debts and their amounts, regardless of interest rates. Minimal payments are made on all debts, with the exception of the smallest, where attention is focused first. Once the smallest debt is paid, the focus then becomes the second largest, then third, and so on until all debt is eliminated.

The Avalanche Method

Unlike the snowball method, the avalanche method takes into consideration the interest rate on each type of debt, but ignores the amount owed. Debts are organized according to the size of the interest rate, with the first focus being the debt with the largest interest rate. Once the debt with the largest interest rate is eliminated, the focus becomes the debt with the second, then third, largest interest rate, until debts are fully eliminated.

The Problem

While the above strategies are easy to implement, they are not considered best practice.

All debts share unique features which should be considered when creating a strategic approach to debt reduction. The unique features of each debt which should be considered in your debt reduction strategy include the:

  • Amount

  • Interest Rate

  • Debt Type

  • Loan/Debt Origination Date

  • Loan/Debt Duration

The Solution

The reality is that to create a strategic approach to attack your debt, one which reduces your debt as quickly as possible, and saves you money overtime, you need the help of a skilled financial strategist utilizing a data informed individualized approach.

Financial strategists first compare your current debt reduction strategy exploring both the duration of time it will take to pay off your debt, as well as the amount of interest you will pay overtime under your current approach.

Strategists then examine, collectively, your outstanding debt, the amounts of each debt, the associated interest rates, as well as other pertinent features. Strategists can then calculate the ways in which different debt reduction strategies can impact your financial outcomes.

Having a financial strategist in your corner helps ensure that your money and your time are well protected and allows you to adopt a strategy that not only is more advantages to you and your situation, but also aligns with your life goals, interests, and passions.

Breakthrough Innovations

Breakthrough Innovations offers financial strategy services to help explore ways in which various debt reduction strategies could be implemented to achieve best outcomes.

Breakthrough Innovations offers absolutely free 15 minute discussions (no strings attached / no gimmicks) to clients who are interested in learning the ways in which strategy can be applied to their debt reduction approaches.

Schedule time with BTI today, and let's talk strategy!

"A vision without a strategy remains an illusion."

-Lee Bolman

Breakthrough Innovations LLC

Financial Literacy & Financial Coaching https://www.breakthroughinnovations.net/ The sky is the limit and a sound financial future allows you the ability and confidence to go after the things you want. Subscribe to our mailing list: https://www.breakthroughinnovations.net/

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