Strategies to Pay off your Debt
Covid-19 has tested the ground of two sectors, health, and finance. Many Americans have been infected with Coronavirus, and lots have lost their jobs. In this financial condition, the quicker you can repay your debt, the more it will benefit you.
There are two debt payoff methods we will review, along with their positives and negatives, that will be helpful for PAs
Debt Avalanche debt-payment method
With the debt avalanche method, you will start your debt payment with the highest interest rate first. Financial experts say the debt avalanche method is all about math, and you can save a large amount of money by adopting this debt payment technique.
How the debt avalanche method works:
Suppose you have three outstanding balances.
- Credit Card one, with a $3000 outstanding balance, $100 minimum monthly payment, and a 25% interest rate.
- Credit Card two, with a $2000 outstanding balance, $80 minimum monthly payment, and a 20% interest rate.
- A Physician Assistant Student loan, with a $30,000 outstanding balance, $300 minimum monthly payment, and a 5% interest rate.
First, you should pay off the minimum of all the outstanding balances.
Second, try to contribute as much money as you can towards the debt with the highest interest rate.
Third, pay off your debt with the highest interest rate, then concentrate on the debt with the second-highest interest rate.
Fourth, from the highest interest rate to the lowest interest rate, repay all your outstanding balances.
By arranging your outstanding balances from the highest interest rate to lowest interest rate, you can save hundreds of dollars in interest payments.
For PAs, the debt avalanche method will help him/her by reducing the debt payment time. They can repay all the outstanding balances in less than the usual time, a positive side of the debt avalanche method.
Debt Snowball debt-payment method
Like the debt avalanche method, the debt snowball method can prove to be an effective debt payment strategy. With the debt snowball debt-payment method, you can gain momentum by focusing on the small debt first. Debt repayment can be tiresome, that nobody likes to give much thought.
If a physician assistant pays off the largest debt payment first, they might get discouraged and try to quit the monthly debt payment schedule. So, the debt snowball plan will be a better payment strategy to adopt.
Take a look at how the debt snowball payment strategy works:
Remember, the debt snowball payment method works with the outstanding balance of debts, unlike the debt avalanche technique, which works with the interest rates.
Suppose you have the same three outstanding balances that you have applied in the debt avalanche method.
- Credit Card two, with a $2000 outstanding balance, $80 minimum monthly payment, and a 20% interest rate.
- Credit Card one, with a $3000 outstanding balance, $100 minimum monthly payment, and a 25% interest rate.
- Physician Assistant Student loan, with $30,000 outstanding balance, $300 minimum monthly payment, and 5% interest rate.
First, repay the minimum payment of all the three outstanding balances.
Second, pay extra as much as you can to the smallest outstanding balance.
Third, when you finish repaying your smallest outstanding balance, concentrate on the next largest.
Fourth, pay off all your outstanding balances from the lowest to the highest.
With the debt snowball method, your attention to paying off your debt will remain, and you can pay off your outstanding balances in a systematic way.
Debt avalanche or Debt snowball: What will benefit you more?
- The debt snowball method can be your ideal debt payment strategy if you have small debts, or you quickly lose the zeal to pay off your debts.
- With the debt avalanche method, if you keep calm and pay off your debts from a high-interest rate to a low-interest rate, this method will be ideal for you. The debt avalanche method can save you money by paying off high-interest loans first.
- Though the debt snowball will cost you more due to the amount of interest, it can help you to sustain your debt pay off momentum. With the debt snowball method, chances are less that you’ll lose your focus and surrender before the monthly debt payment target.
Choose the debt payment strategy that you feel most comfortable with. Don’t take extra pressure on, and choose the debt pay off method that suits you.
What if you have taken a payday loan other than the secured and unsecured loans?
When there is a financial crisis, it is not unusual that some people are trapped by the payday loan, with more than 300% interest rate and a very short time to repay the loan, PAs should avoid the payday loan (pdl).
However, if you have already taken a pdl then a suggestion is to take expert help on how to reduce payday loan debt. Loans are never good for financial health. Be it a secured loan, unsecured loan, or the payday loan. You can take an expert’s help on how to pay off the loan even if it is a high-interest rate payday loan.
Conclusion
Paying off debt is not easy, especially for someone who is already in a demanding job like a PA. If you think you can focus on your debt payment regularly and can remember the monthly debt payments, then the debt avalanche method is made for you. If your goal is to get rid of your debt burden, then you can depend on the debt snowball strategy.
Author Bio: Catherine Burke is a financial writer for online payday loan consolidation. She provides information on successful cash loans and payday loan consolidation to help people get over a difficult patch. She lives in Kansas and has earned a frame in the matter of payday loans.
