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How to Pay Off $65,000 of debt in 3 years and mortgage in less than 8 years and save over $100,000 .

Two concepts that you may or may not have heard about. Snowball and Avalanche debt reduction. However I put a twist on these that can save you even more $Money!

You won’t have to go out and get three jobs and work 100 hours a week! I will break down both concepts, but I think it is essential to show you how to save even more using both ideas. It’s not rocket science or covid-19 science, but a simple concept called bi-weekly payments. You can even use this even if you don’t use either concept and still save a boatload of money.

The concept is easy to pay your monthly debts every two weeks instead of once a month. You are just cutting your payments in half. It works well with all your credit cards, school loan, car payment, personal loan, home equity loans, and especially with your mortgage.

Get $50 Free

The best way to help you along your journey is to sign up for a credit union account. Credit unions are a not-for-profit cooperative, so earnings are distributed through lower loan rates, higher dividends, low or no fees.

Gold Credit Union will give you $50 when you sign up, and bi-weekly payments are welcome.

Most creditors frown upon this because of the interest they lose. For example, if you have a $25,000 auto loan at 7% for 60 months, you would pay $4702 in interest over the 60 months. Paying bi-weekly, your total interest would be $4216—A savings of $486 and 6 months sooner.

Now let’s take a mortgage amount of $160,000 at 5% for 30 years. The total interest paid over 30 years is $149,168. Bi-weekly payment total interest is $121,718 and paid off in 303 months instead of 360 months—a savings of $27,450 and 57 months sooner.

If you combine the bi-weekly payment with the concepts below, you will have more significant savings. Based on the assumptions below, if you just paid the minimum amount without any additional debt, you would pay $151,407 in interest. Using the snowball example below with the bi-weekly payment, you would save an extra $3486. The savings doesn’t sound like a lot, but you are paying off $225,000 in less than eight years. The more money you can keep in your pocket, the better.

There have been quite heated discussions on which debt reduction plan works better. In a nutshell, the snowball you pay the lowest to highest debt in order and the avalanche you pay the debt with the highest interest rate first to last. I like the snowball concept because you can see your efforts sooner even though you will pay a little more in the end.

Snowball Concept

The debtsnowball concept is a debt-reduction strategy whereby you pay off the accounts starting with the smallest balances first while paying the minimum payment on more significant debts. The initial snowball is the amount you can extra per month with the smallest debt.

The basic steps are:

  1. List all debts in order from smallest balance to most significant. However, if two obligations are very close in the amount owed, then the debt with the higher interest rate would be moved above in the list.

  2. Commit to pay the minimum payment on every debt.

  3. Determine how much extra can be applied towards the smallest debt. (Initial Snowball)

  4. Pay the minimum payment plus the extra amount towards the smallest debt until it is paid off. Note that some lenders (mortgage lenders, car companies) will apply additional amounts towards the next payment; for the method to work, the lenders need to be contacted and told that extra payments go directly toward principal reduction.

  5. Once the first debt is paid in full, add the total amount to the next debt based on your original order.

  6. Repeat until all debts are paid in full.

Example of Snowball:

You can see the debts of this family below.

Each debt below is listed in the order it will be paid off. You can see the total interest paid with the snowball method and how many months it takes to pay off the debt. In this example, the assumption is that you add $820 to credit card#1 plus the monthly payment of $30, thus paying $850 a month. All debt can be off by April 2028, SAVING $101,824 IN INTEREST.

Avalanche Concept

The debt avalanche concept involves paying off the debt with the highest interest rate first and then the second highest, and so on.

The basic steps are:

  1. List all debts in order from the highest interest rate to the smallest. However, if two debts are very close in interest rate, then the debt with the higher amount would be moved above in the list.

  2. Commit to pay the minimum payment on every debt.

  3. Determine how much extra can be applied towards the highest interest rate. (Initial Avalanche)

  4. Pay the minimum payment plus the extra amount towards the debt with the highest interest rate until it is paid off. Note that some lenders (mortgage lenders, car companies) will apply additional amounts towards the next payment; for the method to work, the lenders need to be contacted and told that extra payments go directly toward principal reduction.

  5. Once the first debt is paid in full, add the total amount to the next debt based on your original order.

  6. Repeat until all debts are paid in full.

Example of Avalanche

Each one below is listed in the order it will be paid off. You can see the total interest paid with the avalanche method and how many months it takes to pay off the debt. The assumption is that in this example, you add $820 to credit card#2 plus the monthly payment of $100, thus paying $1020 a month. All debt can be off by May 2028, SAVING $103,388 IN INTEREST.

Welcome to Reality

You can read how to do all of the concepts, but the absolute truth is we don’t live in a perfect world! Today you have seven debts, and you’re paying them on schedule. Then wham your heating system goes down, and it will cost $1000 to fix or $5000 to replace. You choose to fix it since it is only seven years old.

The roller coaster effect.

You can still keep on track with your payments but depending on when the wham happens, and you deduct the amount you are paying with your snowball money.

Below is a cut of my worksheet to illustrate this concept. The snowball and your payments are going along, and then in February, the heating system needs repair. At that point, you have $1190 towards your snowball in January. You pay to get your heater fixed in February and still have $190 towards your credit card#2, as shown below. With my debt reduction spreadsheet, you can see how unexpected expenses will affect your payment schedule. You can also see if you make additional money you can add and see the results.

Explaining the Debt Reduction Spreadsheet:

When you download my debt reduction spreadsheet, it has four tabs:

Tab1: Calculator, this is where you input your information

Tab 2: Snowball effect payment schedule, there are two areas you can input numbers, additional to add more in that month and surprise expense where you will see a deduction for that month

Tab 3: Snowball with Bi-Weekly payment schedule looks the same as the previous tab, except two payments a month. When you add additional or subtract surprise expenses, it is for two weeks.

Tab 4: The help page will it will guide you through the spreadsheet and explains terms.

Final Thought: You will also see the payment schedule tab for both concepts under surprise expense, where it says REWARD—the other reality check. Reward yourself and or your family. After paying off credit card#1 and a personal loan in 6 months, reward yourself by going out to dinner and a movie or take the family to an amusement park for the day. Do this along your journey, and it will keep you motivated; you will have a sense of pride in what you have accomplished. With these tools and your persistence, you will be debt-free! You can download the spreadsheet on the home page. Click on the box that says, IF U Don’t Ask Snowball Spreadsheet.

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