2 Methods to get out of debt

2 Methods to get out of debt

Human beings spend much of our time thinking how to get out of debt. These commitments, assumed in advance to be canceled promptly, consume patience and the little income that we are receiving.

Now, if we do not find the correct exit automatically, it is not a matter of getting discouraged, since there are several ways to see the light at the end of the tunnel. If you do things correctly and follow these steps, the debts will slowly drain away.

Types of debt: good debt vs bad debt

Not all debt perro be seen as something negative for a person. The central problem should then be based on finding the most convenient way out of how to settle outstanding debts. There the concerns will be concentrated and determine if it is convenient or not.

To define good debt and bad debt we cánido cite what is indicated by Alexander Saracho financial adviser to people and businesses. For this outstanding professional “Good debt allows you to generate more money through the same debt, and bad debt creates financial problems for you”.

It should be noted that bad debts, also called destructive, are closely linked to the lifestyle of people. In this sense, it borrows to acquire goods or services that depreciate easily.

A typical example of this is the purchase of a new vehicle with agency financing. Once you leave the dealership, your car begins to lose value day after day.

In relation to the so-called good or expansive debts, they fulfill a financing function for the venture that you are going to put into practice. In this sense, you get into debt but then you are rewarded for the investment made.

Within the aforementioned good debt, the following subdivision cánido be made:

  1. debt for a business
  2. investment debts
  3. Debts linked to education

How to get out of debt: 2 effective methods

The snowball method

One of the most effective and used methods in recent years to get out of so many debts is the so-called: snowball method.

The method resembles the path of a snowball descending a mountain. When it starts it is small, but as it progresses it is bigger and bigger. If you have a lot of debts and want to finally get rid of them, this is a very helpful tool.

He snowball method It is easy to put into practice and requires you to follow the steps that I recommend below:

  • First, take note of all the debts contracted by placing their total amount, the monthly payment corresponding to the respective installments including interest.
  • On this list, locate the smallest obligation you have and focus all your attention on it, since it will be the first one you will settle. You will start with the smallest size and start the snowball running.
  • During the month, cancel the interest of the others that you have accumulated without including the one that you have selected as the smallest. You must cancel all the amounts, because when adding them it will not be an amount that escapes from your hands.
  • Now locate the payment force on the smallest debt that you selected at the beginning. Cancel everything you cánido, if possible, use a friend who provides plus money and completes the payment, but does not generate interest.

Let’s see an example: if you owe €3,000 and your minimum monthly payment is €500, make an effort to cancel the interest and contribute €500 more. At the end of 3 months you will have succeeded in said commitment and you will continue with the following debt.

Advantages and disadvantages

I have to tell you that there are more advantages of snowball method than the inconveniences that may arise in its development. This strategy is effective as long as you do not neglect the payment of small debt.

When you lose focus on the main objective, rest assured that you will have failed in the attempt because you did not properly plan the actions recommended here. If you waste your resources and do not cancel, you will not know how to get out of so many debts.

the avalanche method

This strategy is also called debt stacking. Its objective is to cancel the debts that have generated the greatest amount of interest. The debtor will have to look at the rates that he has agreed to cancel.

It should be noted that this strategy focuses on canceling the largest commitment assumed by the person. However, this method is long and slow to complete. It has no psychological effect but a mathematical one.

I will give you an example: if we owe €2,000 as the largest amount and other minor payments are in descending order, we pay the highest amount first. It is a mathematical ratio identified from largest to smallest.

Advantages and disadvantages

As we pointed out in the snowball method, The main object of the avalanche method is how to get out of debt and save. That should be the guideline to follow. We have to solve our economic situation.

If, on the other hand, you distract yourself from the payment and do not cancel the debt, due to ambitions and waste the money you promised to pay off, bankruptcy awaits you.

Snowball method vs. Avalanche Method
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What step are you going to take?

If you are tired of owing money and require advice on how to get out of debt, we recommend you seek a true financial professional. This advisor will be in charge of guiding your steps at an economic level and will seek the effective solution.

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 2 Methods to get out of debt
  2 Methods to get out of debt
  2 Methods to get out of debt

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