Thursday, January 31, 2008

Debt Elimination Strategies

In this article I will be describing two debt elimination strategies that can be implemented with the Debt Accelerator software that I mentioned in my last article. The two strategies are the Snowball and the other is the Cascading Debt.


  1. Make a list of all the debts that you have. Include as information the current balance, the interest and the minimum monthly payment due.
  2. Re-organize list smallest balance to largest.
  3. Make your payments.
  4. When the debt at the top of the list is paid add the payment of that now paid debt to the next debt on the list.
  5. Each time a debt is paid repeat step 4.
Cascading Debt

The only difference is that the list needs to be organized from highest interest to lowest interest.

Mathematically the Cascading Debt is the method which saves the most interest however by using the Snowball you may see faster results which may keep you from giving up on this strategy.

The Accelerator

Is an extra amount of money that is added to the debt at the top of the list (for either strategy) to help accelerate the debt elimination. Obviously the greater the accelerator the greater the acceleration:) This makes having a budget to insure that the accelerator is maximized is very important.

My Numbers and Projections

click on images to view larger

Figure 1 Screen Shot My Numbers using Cascading Debt Elimination

Figure 2 Screen Shot My Numbers using Snowball Debt Elimination

Figure 3 Screen Shot My Numbers using my accelerator

Comparing the results of Cascading (Figure 1) to Snowball (Figure 2) we see that in both cases all debts would be paid in 14 years except that with the cascading strategy we save $151.81. This is negligible in my case but $151.81 is $151.81.

Figure 3 shows the power of the accelerator which in my case would allow me to pay off all my debt in 5.5 years! I know some of you reading this will say things like "Sure if I had $1950/month extra to put towards my debts it would be easy.". This would show a misunderstanding of the way debt works. The reason is that your creditors lend to you according to your ability to pay. This means that their may be among you that earn significantly more than me and have much more debt than me but have more money to put towards their accelerator and therefore could be debt free as fast as me, Of course the same is true for those that earn less. The exception are people who end up in a situation where there earning significantly decrease from when they made the debt.

John Commuta author of Turning Debt into Wealth ebooks asserts that for most people they should be able to pay all their debts including their mortgage in 5 to 7 years.

In my next article I will give you my view on debt elimination vs savings.

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