The main characteristic of a long-term debt is that it extends for more than a year, explains an expert.
Debts are a constant source of worry and stress, even more so when due dates are approaching. One of the main problems caused by debt is the lack of cash flow, in addition to compromising the ability to save.
The snowball method It is one of the most suggested to gradually eliminate debts. Gabriel Rovayo, founding president of Roadmak Solutions Consulting, explains that This method consists of reducing or liquidating one by one all the debts, beginning with the loan with the lowest dollar amount owed that was acquired.
“The ‘snowball’ method has many advantages and disadvantages; and, depending on how it is used, it can be very effective in the short term”, says Rovayo. “On the one hand, will give each person that feeling and satisfaction of reducing debts, thus provoking that self-motivation to get ahead. On the other hand, we must remember that there will be the possibility of not having enough money for the minimum payment of each of the debts. The important thing is to commit and not deviate from the objective. Reducing any debt takes time.”
How to do it
To start, it is recommended to organize a list of all loans and their total amounts, monthly payments and due dates, to keep better control of debts. Once ranked from lowest to highest, the largest amount of the available budget is allocated to the first on the list.
Thus, the money that was previously allocated to that debt can be added to the next of greater quantity, creating the “snowball” effect. It is a way to reduce stress and eliminate debt.
Opt for Avalanche
A method similar and effective is “avalanche”. With it, you will focus on pay first that debt with the highest interest while making minimum payments on the rest. What is sought is to reduce the total amount to be paid for interest.
For the debts that have lower interest, be sure to pay the monthly fee, in the case of credits, the pay the minimum fee on your credit card. This way you will sustain your payment system until you finish with the first debt.
The economic adviser comments that in this methodStart by paying off the largest amount of debt. “Paying off high payments in the short term could save you money in the long term,” says Rovayo. (I)
Source: Eluniverso
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