Etini
Valued Contributor
There are things that happen in life and we find ourselves in debts. One of my childhood friends spoke with me on how she lost her Dad in the middle of an undergraduate program in UK and she had to finish her undergraduate and post graduate programs in debts. The next phase of her life would be dedicated to paying debts. This and other circumstances throw people into myriads of debts. In this post, we are going to talk about the avalanche approach to debts repayment.
This strategy of debts repayment involves the prioritizing of debts based on their interest rates. This simply means that you list out your debts in an order of which one has the highest interest from top to bottom. The idea is that you wouid focus on clearing the debts that have the highest interest rates.
It is true that sometimes that the principal amount of loans might not be that huge but accumulated interests is what turns out to be huge. And the higher the interests, the more expensive it becomes to keep that loan unpaid. So the avalanche approach encourages a person to prioritize loan repayment according to the rate of interest of that loan.
For example, you have three loans to repay. And the interest rates are 6%, 8% and 10%. With the avalanche approach, you would just have to pay minimum repayment amount on the 6% and 8% loans. You should pay more than the minimum monthly amount on the. 10% loan. If possible, pay double. The idea is that the loan must be cleared as soon as possible. With this approach, you would save money on interests. When that is done, you prioritize the debt with the second highest interest.
This approach of debt repayment makes it easier to repay loans faster and saves money on interests.
This strategy of debts repayment involves the prioritizing of debts based on their interest rates. This simply means that you list out your debts in an order of which one has the highest interest from top to bottom. The idea is that you wouid focus on clearing the debts that have the highest interest rates.
It is true that sometimes that the principal amount of loans might not be that huge but accumulated interests is what turns out to be huge. And the higher the interests, the more expensive it becomes to keep that loan unpaid. So the avalanche approach encourages a person to prioritize loan repayment according to the rate of interest of that loan.
For example, you have three loans to repay. And the interest rates are 6%, 8% and 10%. With the avalanche approach, you would just have to pay minimum repayment amount on the 6% and 8% loans. You should pay more than the minimum monthly amount on the. 10% loan. If possible, pay double. The idea is that the loan must be cleared as soon as possible. With this approach, you would save money on interests. When that is done, you prioritize the debt with the second highest interest.
This approach of debt repayment makes it easier to repay loans faster and saves money on interests.
