Are you buried in credit card debt or student loans? And you’re looking for the best way to pay them off as soon as possible? If that sounds like you stick around to the end of this blog because today we’re going to go over a few methods of how to get out of debt and put you in a financially secure position along the way.
So there are two main methods of paying off debt. The first one we’re going to talk about is The Avalanche. With The Avalanche, you order your debts in order of highest interest rate to lowest interest rate, and you put all of your excess payments on that highest interest rate loan. A slight issue with this method is that it could cause delayed gratification because a lot of times the loan with the highest interest rate also has the highest balance. So it could feel like you’re not really getting anywhere. This is why we suggest using The Snowball.
With The Snowball, you order your debts in order of lowest balance to highest balance, and you put all of your excess payments on that lowest balance. Then as your small debts get paid off, you add those payments to the next one down, the next one down, the next one down, until eventually, you’re putting a lot of monthly cash flow towards your highest debt. This one’s great because it feels very gratifying to get all of those debts paid off, even if they’re small amounts.
The problem with The Avalanche and The Snowball is really that you are giving your excess cash to the bank or the credit company. So you go from a situation where you have a lot of debt and little cash flow to a situation where you have no debt and no cash. Either way, you don’t have access to money.
I can’t tell you how many times we get the question:
Should I start saving first or should I pay off my debt first?
We always suggest you start saving because the sooner you start saving, the sooner you jump on the compound interest curve. That means your money is going to be working for you 24/7. We always suggest saving in a specially designed life insurance policy.
Now here’s where The Snowball comes into effect. We borrow against the policy to pay off the smallest debt, and then that payment that we were making on the smallest debt goes back to the policy. You see, if you make that monthly payment directly to the credit company, the credit company owns and controls that cash flow. But when you make that payment back to the insurance policy, you own and control that cash flow, which means you could use it again. Then when there’s enough cash to pay off the second debt, you can take that money, pay off the second debt, and now you have two payments coming back to the policy which you own and control. Eventually, you’ll have all of your debt paid off and all of your debt will be paid off sooner than if you just did the regular snowball. That’s why we call this method The Snowball on Steroids.
After you use this method, what you’re left with is a policy with a ton of cash value that you don’t need to access money from the banks anymore. You’re able to access it from your own policy without any questions asked. You have complete liquidity, use, and control of that money whenever you want for whatever you want. You increased your net worth and increased your security all with the same dollars you were using to pay off your debt.
Here’s the point – it’s important to get out of debt, but it’s more important to put you and your family in a secure financial position. This Snowball on Steroids method does both simultaneously. If you’d like to get started, watch our free web course on our website where we go through exactly how we put this to work for our clients. If you’re ready to get started, schedule your free strategy session today.
And remember, it’s not how much money you make, it’s how much money you keep that really matters.