Debt Elimination Techniques

Benefits and Disadvantages

Debt Elimination Techniques…

Remember, the financial principal behind each accelerated debt elimination approach is the lower your principal balance, the less interest you pay and the faster you get out of debt. So your goal is to use your monthly surplus to make extra payments on your debts’ principal balances.

The basic difference between the various debt elimination methods has to do with which of your debts to pay first, the amount of principal payments to make, and the frequency of your principal payments.

By using an online debt elimination program, the program makes complicated calculations to develop the optimum debt elimination strategy for you. This is the method I prefer. It’s easy to use and can accelerate your debt elimination progress faster.

But there are also two basic manual accelerated debt elimination approaches you can consider in developing your debt elimination strategy:

The Debt Snowball technique.

The highest interest rate debt elimination method.

In his book The Total Money Makeover, Dave Ramsey argues that it’s better to list your debts from the lowest balance to the highest balance and then pay them off in that same order.

Others argue that the better method is to list your debts in the order of the highest interest rate to the lowest interest rate and then pay them off in that same order.

The benefits, of the highest interest rate technique, are you incur less interest in the long run and you get out of debt faster. By paying the principal on the highest interest rate loans first you eliminate more interest faster.

However, if you believe you will have trouble staying motivated to be debt free, the Debt Snowball technique might be better for you. This method will help you to payoff your smaller debts first and feel like you're making progress faster. It may help you to stay motivated to continue to stick to your debt elimination plan.

Here are examples of how the two methods work:

Debt Snowball Approach
DebtPrincipal BalanceInterest Rate
Visa $50014%
Auto Loan $150022%
Student Loan $250016%
Master Card $30009%
Dept. Store Card$320011%

Highest Interest Rate Approach
DebtPrincipal BalanceInterest Rate
Auto Loan$150022%
Student Loan $250016%
Visa $50014%
Dept Store Card$320011%
Master Card$30009%

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