Playbook Series 3 - Pay Down High-Interest Debt

Hello and welcome back to the new retirement YouTube channel. Your Go to source for financial planning, education and action. I'm Coach Jean, a financial wellness coach here at New Retirement and today we're going to be tackling the topic of covering or paying down high interest debt. We have an action packed video today as we're going to be discussing the snowball and avalanche methods of debt reduction. Play three within the playbook's order of operation requires that we pay down high interest debt. So let's discuss the benefit of paying down high interest debt. High interest debt can feel like a heavy burden, but don't worry, today we'll be discussing two powerful strategies to help you conquer it. Let's first start by understanding why tackling high interest debt is so important. There are three primary benefits to paying off your high interest debt. First and foremost, it's the interest savings. By attacking the high interest debt, you're minimizing the overall interest you pay, putting more money back into your pocket. Second is the financial freedom. As you eliminate debts, you free up your cash flow, giving you more control over your money and room to pursue your financial goals. Third, it's the psychological wins. Both snowball and avalanche methods that we discussed today provide quick wins, creating a sense of accomplishment that propels you forward. It's important to utilize any excess income you have towards paying down your debt before moving on to place four and beyond. Paying high interest debt will help you to save money, ultimately giving you freedom and flexibility, allowing your future dollars to work for you rather than against you. Now let's talk about the two well known debt payoff methods, the Debt Snowball and the Debt Avalanche. The Debt Snowball method is a strategy that focuses on paying off your smallest debts while working on making the minimum payments on the larger debts. Here's how it works. You'll start by listing off all of your debts, listing your debts from smallest to largest. Then consider your minimum payments. Make minimum payments on all debts except for the smallest. Attack the smallest debt by devoting any excess funds towards paying off that smallest debt. Once the smallest debt has been paid off, you roll that payment into the next smallest debt, creating the snowball effect. The Debt Avalanche method is the strategy focused on paying off the debt with the highest interest rate first, potentially saving you more in interest in the long run. The steps are a bit different here with the debt avalanche. You'll start again by listing your debts, but this time we're looking at the order of interest rate from highest to lowest. Then you'll make minimum payments on all the debts except the one with the highest interest rate. We're going to attack that account with the highest interest rate, devoting any excess funds towards paying down that debt. Once the debt is paid off, we'll redirect the payment to the next highest interest debt. The process builds momentum, like an avalanche gaining speed so which method is right for you? It depends on your financial personality and your goals. The Snowball method offers quick victories, while the Avalanche method maximizes your interest savings. So take a moment to consider what motivates you. Take control of your finances and enjoy the benefits that come with financial freedom. If you found this information helpful, don't forget to like, subscribe and hit the notification bell for more financial insights. Until next time, take control, plan wisely, and make the most of today.