Videos play from YouTube only after you press play. Watch on YouTube
Not all debts are made the same. Some debts are made to build your future, while others are meant to ruin it.
Transcript
Transcript generated from the video captions. It may contain small errors.
Not all debts are made the same. Some debts are made to build your future, while others are meant to ruin it. If you don't know the difference, you're going to end up treating a 3% mortgage loan and a 24% interest credit card debt the same, and that's a mistake. In this video, I want to walk you through how to look at your debt, not just how much you owe, but also what is it costing you, what kind of debt is it, and what is the plan that you can have to overcome the debt.
So, let's start off with different type debts that you can have. This could be like a car loan, student loan, or home loan. In a lot of cases, these tend to be lower interest rate debt. The key with this, too, is that it's really tied to either building value or building your earning potential in the future.
Then you have other loans like credit card debt or personal loans or buy now, pay later type of loans, and the interest rates tend to be higher. Honestly, almost too high in these situations. Unfortunately, none of this is helping you to build net worth in the future. So, the first step is very simple, and a lot of people really don't do this, but it's really just writing down all the debts that you have, and also writing down the interest rates along with the debt as well.
The point of this is that you can't build a plan around your debt if you don't really understand what it's all that you're dealing with in the first place. Now, once you have a really good understanding of all the different types of debt that you have, then you can move over to really understanding how you go about tackling this.
A method called the snowball method. This is where you attack the debt that has the smallest balance. You choose that one to be the first one to go and tackle, irrespective of what the interest rate is. You just want to go for the smallest balance. Once it's gone, you then roll that payment that you've made to the smaller balance to the next smallest balance.
You continue to do this over and over again till you're completely out of debt. Then the second one is called the avalanche method. In this instance, you're attacking the debt that's the highest interest rate. This is regardless what the balance is. You attack the debt that has the highest interest rate. truth. Both of these methods work.
The reason why is because if you look at the snowball method, you're essentially paying off the smallest amount, and it's helping you build quick wins, psychologically helping you get out of debt. While the avalanche method is mathematically helping you get out of debt at a quicker rate because you're attacking whichever debt has the highest interest first.
So, the real question isn't which one is better, it's whichever one you're willing to stick with for the long haul. Because a great plan that you implement in month three will not be or outlast a plan that you've been implementing that's good enough for the past three years. If you get into a lot of debt and you're really not sure what fits or what approach to take, I would love to be able to have a conversation with you.
Book an appointment, let's talk it through together. Thank you and I pray you have a wonderful day.
This video is for general educational purposes only and is not personalized investment, tax, or legal advice. Every situation is different. Talk with a qualified professional about your circumstances before acting. PLC Wealth Partners is a registered investment adviser. See our disclosures.
