When you have resolved to flatten your debt mountain, there are two ways to do it.
You can start an avalanche and wait for the mountain to fall.
Or you can start with a small snowball and let it grow bigger.
Let this video explain in less than two minutes.
You can also watch on YouTube.
#knowyournumbers
(full transcript)
Compounding interest can make your debts grow. That is why you need a plan to pay off a little more than what your monthly repayments are. Even an extra R100 every month can make a difference.
But what if you have more than one debt? How do you decide where to put that extra cash?
When you have multiple debts, you can choose one of two methods to pay them down:
1. The Avalanche method
Choose the debt with the highest interest rate first.
Make a small additional repayment into it.
Continue until you repay this debt in full.
Now use the repayment you were making towards this debt to repay the debt with the second highest interest rate.
Repeat until all your debts are repaid.
The avalanche will increase as each debt falls and soon your debt mountain will fall.
2. The snowball method
Choose the debt with the smallest outstanding balance first.
Make regular additional repayments until you repay this debt in full.
Now use the repayment you were making towards this debt to repay the debt with the second smallest outstanding balance.
When you have repaid it, channel this repayment into the debt with the next smallest outstanding balance.
Repeat until all your debts are repaid.
The snowball method motivates you as the number of debts you have reduces until they are all repaid.
Use SAM’s Debt Repayment calculator to see how quickly you can pay off a debt when making an additional repayment. And see how much interest you can save to put towards things you want.
Watch the next video to find out whether debt consolidation may be right for you
