The FASTEST Way To Pay Off DEBT (On A Low Income)

so let's face it Americans have a lot of debt in fact we have over 14 trillion dollars worth of debt in the country now if you take away home mortgages and that still leaves us with trillions of dollars worth of student loans credit card bills personal loans auto loans the fact is we have a lot of debt that we owe to various different organizations and companies and so what I'm gonna do in this video is we're gonna break it down as simple as possible as how you can essentially implement one of the most effective debt payoff strategies and I want you to be very wary about people who are offering to help eradicate your credit card debt or to boost your credit score 200 points anybody who's who's offering that just be careful of what's in it for them in a lot of cases it's going to be taking a piece of the pie trying to get some money from you to help you and get rid of the the credit card bills that you owe so just be very careful with that when you go through this debt payoff journey but look we have over $30,000 in student loans on average when people graduate from college a lot of Millennials are flooded with debt and if you watch the previous video about how a lot of Millennials are going to struggle to get to retirement one of those reasons is because of debt and that holds people back from not only starting families from not only buying houses but it holds them back from contributing to their retirement accounts it holds people back from making life decisions for their long-term future for saving for their kids college plans because they're not able to save any money because they have so much debt so it's very essential to pay off debt as soon as possible I think a lot of us know that but there's more urgency to it than I think some people might realize and the reason for this is because if you look at the current state of the economy a lot of economists will agree that it's doing fairly well some people think that it's not doing as well as it looks on paper but the truth is the unemployment rates the lowest has been in a very very long time and the economy is doing pretty well at least compared to what it was doing ten years ago so looking at that you think well this is this is good we're we're doing well I don't worry about my debt as much but I just want to remind you that the economy can change very very quickly and people can lose their jobs people get laid off if we enter something like what we did ten years ago people had large amounts of debt and it was fine at the moment maybe there the house is a little bit too big for them maybe they had $10,000 worth of credit card debt but you know they were able to kind of get by because they were making pretty good money they were middle managers somewhere and then the recession hit and that could happen again in the future so you need to be very careful in this because if you get laid off if you lose a job suddenly it's almost impossible to start paying off those bills to start paying all those things and then you're going to start the faulting on loans and file for bankruptcy that's not fun but because you're watching this video you should be in pretty good shape now I'm not a financial advisor I'm not an expert on this this is just my opinion but I wanted to share with you today and it's all free so let's just kind of get into the meat potatoes of this video and one of the first things that we need to talk about is some of these debt consolidation plans that you see kind of floating around I know whenever I check the mail I get like ten different things about debt consolidation for student loans now I have seen some loan consolidation plans work for people essentially the way that this works is that say you have four different credit cards and each one of those credit cards has a different interest rate maybe 25% maybe some of them are 22 percent but they're all probably in the 20s maybe the upper teens for your your annual interest rate that you're paying on your credit cards what these loan consolidation plans can do is you can take all of these different loans so you're paying like five different bills monthly and it consolidates them into one loan and in some cases that loan could be say 15% or 13% instead of the average of 23% with a credit card now that's possible there are a lot of companies out there that offer that it's I'm still not a huge fan of it but I can tell you that it is a fix for some what kind of saving a little bit of money if you have a lot of bills some loan consolidation plans could be something that you want to explore but I want you to keep in mind that this is sort of just a short-term little fix and this goes with 0% APR like credit transfers or maybe you have a credit card $10,000 worth of credit card bills and you transfer it to a different card and then you get 0% APR for for the next 12 months which means you don't pay any interest on that that's a short-term fix and it's something you can do in the short run but it's not good for the long term of actually getting rid of those credit card bills the truth is the only way to really get rid of your credit card bills is to pay them to pay your debt is the best way to do that so you could explore some of those different things just be very careful on that but you can certainly save some money if you go that route now let's talk about the the actual strategies when it comes to paying off debt there's really two strategies one of them is called the debt snowball method and the other is the debt avalanche method now both of them are very effective I sort of have a preference on one that I think is is the most effective that mathematically makes the most sense but we're gonna go over each one of these so essentially the first strategy that you can take is what we call the the debt avalanche method and what this does is you essentially tackle the highest interest rate debt first so let's say you have five different types of debt and each one of them has a different interest rate maybe the credit card interest is the highest at 23% then you have maybe a personal loan at 17% then you have maybe some other type of debt like a student loan at 10% and then a home mortgage at 4% and an auto loan at 3% what you do in this case on the Avalanche method for paying off debt is you focus heavily on paying off the highest interest rate debt first now the key to doing this with with any debt payoff strategy that you ever use is you need to make the minimum payment every month for every type of debt that you have as soon as you start missing minimum payments two things happen first of all you get hit with the late fee I know that happens with credit cards you might get a thirty or forty dollar late fee if you skip your credit card bill don't do that but also it's gonna end up hurting your credit score because it means that you defaulted on that payment it means that you you weren't able to make that payment so without a doubt you need to make sure that you're making at least the minimum payments on all of your bills okay once you make the minimum payments then what's the avalanche method you look at the highest interest rate and you tackle that interest rate first so you take all of the leftover money after you created a budget with Microsoft Excel or you just wrote down all of your expense and you created the budget you found out okay I have two hundred dollars left over at the end of the month what should I put this money towards after you put it towards your minimum payments and then you take any leftover money and you focused on the highest interest rate debt first and then once that highest interest rate debt first which is probably going to be credit card debt if it's not credit card debt it might be personal loans or something that's very high in terms of interest rates right you can find all these interest rates by simply just calling whoever is giving you that loan or looking on their website a seeing your account to see how much interest you're paying it and you know it kind of startles me to see how many of my friends when we talk about student loans or maybe this this car loan that they just got and ask them what what interest rate are you paying on that and a lot of people just don't know they know their monthly payment but they don't know the interest rate find out what your interest rate is for all of your types of debt write it down have it written down somewhere so you can look at it okay so that's the debt avalanche method it's paying off the highest interest rate debt once it's totally gone once you eradicate that debt then you have four types of debt left right then while of course paying all the minimum payments you focus on the second highest interest rate then you focus on the third highest interest rate you just go down the list until you have no debt left over what this does is it really prioritizes to to focus on those payments that are going to end up costing you a lot more money if you let them go on longer like credit card bills with twenty five percent interest it's gonna be pretty painful over the long run then you might have things like a home mortgage where maybe you're paying 3% or 4% interest to be honest with you in in those cases I'm willing to carry debt that's three or four percent interest because that's very low and in a lot of cases I can make more money by putting my money into investments or into the stock market and then kind of just make those monthly payments on the mortgage on those kind of lower payments three or four percent you know a lot of people have asked me to that should they focus on investing or so that should they focus on paying off debts they put money into the retirement account or should they pay off their debt because they have all these credit card bills or different types of loans my personal choice for this and this is not necessarily advice for you but this is for myself any debt that I have that is over five percent interest rates for the year I will focus on paying that off as much as possible and if it's anything less than five percent I'll just pay the required monthly payment for it and not really worry about it as much because the the average stock market grows about seven to ten percent per year I think 2019 is stock markets up over twenty percent so in a lot of cases anything below five percent I don't really sweat that much obviously I'm still making those payments but it's not something that I'm focusing on as much as those higher interest rate debts now that's the debt avalanche approach it's mathematically makes the most sense but in a lot of cases people struggle to really kind of use this effectively because they can get discouraged it's difficult to make it actually work and to start to really see progress so the other method is called the debt snowball approach to paying off debt and this is what you know people like Dave Ramsey who's really really a great guy when it comes to helping people kind of get onto their feet financially and the idea here is that with say you have five different types of debt same example of what we just used but instead of focusing on that highest interest rate debt first you're going to instead focused on the lowest payment the the lowest total balance for that debt okay so let's say that between these five different types of debt the lowest balanced debt is going to be your auto loan you only owe $1200 more on this auto loan so in this case what this means is that you would just focus as much as you can while of course paying off all of your minimum payments on all types of five debts every month then you focus on the lowest balance first and then you move on to the second lowest balance and what this does is it allows people to sort of eradicate different types of debt faster than maybe what you could do with the other debt avalanche approach and so what this does is it kind of lets people see some progress because maybe after a few months they suddenly only have four different bills to pay and then after a few more months maybe they only have three different bills that they have to pay and so it you certainly see a lot more progress mathematically it doesn't make as much sense because you might be paying more in interest over the course of your debt payoff journey but psychologically it can make a lot more sense and it can actually be more effective for some people especially if you've struggled with with paying off bills in the past I think the debt snowball method would likely be a pretty good route for you and if you want to learn more about these different types of debt just do like a quick google search on the exact strategies and if if I kind of lost you somewhere along here just just do a quick google search and you'll find how to do that and the final solution here if you still aren't able to really put a dent into your debt if say on average you're paying $300 in just interest on top of the money that you owe say you have a hundred thousand dollars in student loans something crazy you have two hundred thousand dollars in student loans or you have thirty thousand dollars in credit card bills your other option once you get to that point is to find a way to make more money and and that's one of the only things you can do if it gets to the point where you you're running a budget you're saving as much money as possible you moved into a smaller apartment you're not buying Starbucks you're not going out and spending hundreds of dollars on entertainment and you're still not able to make a dent in your debt payoff journey you're gonna have to find a way to any to increase income in some way whether that's just picking up an extra shift at work picking up some type of side hustle some type of side job or finding a way to just increase your income one way or another and you know I know that can be difficult to do it's just kind of making it sound easy by just saying that's what you have to do and it sounds very obvious but it's kind of one of the last things if nothing else works and if you're still struggling with making a dent in in paying off debt then you're gonna have to find a way to make more money and it's very possible I promise you it's very possible plenty of videos on this channel helping people not only with saving money and with budgeting but also with increasing your income so if you're looking for business ideas or different ways to increase your income quite significantly then make sure you subscribe to the channel like I said we don't sell anything we do our best here to help as many people as possible with personal finance so I think that's essentially gonna wrap up this video thanks for watching everybody I really appreciate all support and save everybody in the next video

Channel: Nate O'Brien

Views: 84,673

Rating: 4.9099717 out of 5

Keywords: dave ramsey, how to budget, how to build wealth, how to build wealth in your 20s, how to get out of debt, how to invest, how to invest in real estate, how to invest in stocks, how to invest in your 20s, how to make passive income, how to pay off debt, how to pay off debt fast, how to pay off debt with low income, how to save money, how to save money fast, investing for beginners, passive income 101, passive income ideas, real estate investing, stock market investing

Id: vVv-RKRuJzk

Length: 12min 34sec (754 seconds)

Published: Wed Dec 04 2019