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Learning How to Manage Debt

  • Financial Literacy

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Debt, no matter the size, can feel overwhelming. One of the sneaky dangers of debt is that if you’re not careful, it can grow to an enormous amount without you realizing it. Whatever the source of debt may be – medical bills, shopping sprees, an emergency – it can take over your physical and emotional well-being. While it may seem difficult, getting out of financial debt is not impossible. The best way to do it is by tackling it one by one.


Let me break it down for you.


There are two main ways you can manage debt: using the Avalanche Method or the Snowball Method. The first method uses a top-down approach, while the latter, the bottom-up.


How to manage credit card debt using the Avalanche Method

The Avalanche Method, also known as debt stacking, requires you to pay for your debts from the highest interest rate to the lowest. Here’s how it goes:


1. List down all your debts as well as their interest rates.

2. Make the minimum payments on all of your accounts.

3. Using whatever leftover money you have, put as much as you can in the account with the highest interest rate.

4. Once you’ve paid off the debt with the highest interest rate, move on to the one with the second highest interest rate. Rinse and repeat.


It might take some time before you see any results if you use the Avalanche Method but once you do, they’ll be big. Just like an avalanche, once the debt payments gain momentum, it will look like a rushing wall of snow.


How to manage credit card debt using the Snowball Method 

The Snowball Method is pretty much the opposite of the Avalanche Method wherein you start by paying from the smallest to the largest. Here’s how you’ll do it:


1. List down all your debts as well as their interest rates.

2. Make the minimum payments on all of your accounts.

3. Using whatever leftover money you have, put as much as you can in the account with the smallest balance.

4. Once you’ve paid off the debt with the highest interest rate, move on to the one with the second smallest balance. Rinse and repeat.


What’s the best method to pay off credit card debt? 

That really depends on what kind of debt you have and how much it is. If you have a lot of smaller debts, the Snowball Method will be better for you. If you have a lot of debt with high interest rates, you should opt for the Avalanche Method. The longer you put off paying these interest rates, the more interest you’ll accumulate, putting you in debt much deeper.


Now that you’ve learned how to get out of debt, you’ll want to learn how to avoid debts later on in life as well!


1. Create a monthly budget and stick to it. Figure out how much you make in a month and subtract all of your living  expenses. Once you’ve gotten the amount for your cost of living, you need to figure out what puts you into debt in the  first place. Is it ordering out too frequently or adding too many items to your cart during monthly sales? Do you always charge vacations to your credit card instead of saving up for it? Or maybe you have a habit of buying new gadgets even if your current one is doing just fine? You don’t have to totally deprive yourself of the good things in life – just allocate an    amount that you can spare each month without digging a hole into your bank account.


2. Track your expenses. Now that you’ve made your budget, it’s time to stick to it! Track your expenses diligently. Yes, down to the last centavo. We know the budol is real sometimes but seeing just how much you spend each month can actually persuade you to stick to your budget.


3. Earn extra money. Do you have a passion for cooking or love jewelry? Turn your hobbies into a side hustle for some extra cash! It’s now easier than ever to open a business and sell things online, so take advantage of that opportunity.



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