WEBVTT - Debt Snowball vs. Debt Avalanche Approach To Paying Down Debt #085 0:00:00.080 --> 0:00:03.480 Welcome to How the Money. I'm Joel and I am Matt, 0:00:03.720 --> 0:00:07.480 and today we're discussing the debt snowball versus debt avalanche 0:00:07.520 --> 0:00:28.840 approach to paying down your debt. Yeah, Joel, we are 0:00:28.880 --> 0:00:32.560 talking about the hotly debated topic of how you should 0:00:32.560 --> 0:00:36.320 pay down your debts, that avalanche versus the debt snowball, 0:00:36.400 --> 0:00:38.239 and obviously the debt snowball. A lot of folks have 0:00:38.320 --> 0:00:41.800 heard about that through Dave Ramsey. He's pretty big in 0:00:41.840 --> 0:00:44.519 the personal finance space. Heard of that guy, You've heard 0:00:44.520 --> 0:00:47.440 of that guy. We're coming for you, Dave. Dave's got 0:00:47.479 --> 0:00:49.840 some good things to say, right I don't I definitely 0:00:49.840 --> 0:00:53.159 don't wanna tear Dave down. Um, there's there's actually an 0:00:53.240 --> 0:00:56.080 article in Money magazine recently that kind of was going 0:00:56.120 --> 0:00:59.840 after him. And I will say, Dave not my favorite person, 0:01:00.360 --> 0:01:03.320 not my favorite person, and I disagree with him on 0:01:03.440 --> 0:01:07.080 a lot of things. So disagree with him on things 0:01:07.080 --> 0:01:09.280 except for this one thing that he does. Okay, yeah, 0:01:09.319 --> 0:01:11.760 but no, I feel like he has helped so many people, 0:01:12.240 --> 0:01:14.760 and in particular to get out of debt quickly, that 0:01:14.800 --> 0:01:17.640 I would think twice before speaking harsh words against him, 0:01:17.680 --> 0:01:20.120 just because of how much of a good effect he 0:01:20.160 --> 0:01:22.680 has had in a lot of people's lives. I think 0:01:22.720 --> 0:01:25.759 tackling this topic of how you pay down your debt 0:01:25.800 --> 0:01:28.480 quickly and which of these methods is most effective is 0:01:28.480 --> 0:01:29.840 gonna be good. It's gonna be good for us to 0:01:29.840 --> 0:01:32.240 talk about. Yeah. Dave Ramsey, he's like the godfather for 0:01:32.480 --> 0:01:35.399 personal finance for me, man, he basically ushered me into 0:01:35.440 --> 0:01:38.880 this entire space like ten years ago. So Hill maybe 0:01:38.920 --> 0:01:40.480 at least a little tip of the cap kind of 0:01:40.560 --> 0:01:43.240 launching my financial journey to a certain extent. And sometimes 0:01:43.240 --> 0:01:45.919 there's a teacher that's really great for for a while 0:01:46.240 --> 0:01:48.000 and then you kind of moved past, you know, what 0:01:48.040 --> 0:01:50.240 they have to offer. But yeah, I'm really interested to 0:01:50.280 --> 0:01:52.600 tackle this topic today. It should be fun, Matt. Before 0:01:52.600 --> 0:01:55.080 we get to that, I wanted to frugal versus cheap? Yeah, 0:01:55.080 --> 0:01:56.200 I kind of want to ask you a question. I 0:01:56.240 --> 0:01:59.280 see that written down here. So is it frugal or 0:01:59.360 --> 0:02:03.720 cheap for me to forego buying my kids school pictures? 0:02:04.160 --> 0:02:06.960 M Well, most folks know that I'm a photographer, right, 0:02:07.040 --> 0:02:09.240 so I'm curious what most folks think, you know, Like, 0:02:09.320 --> 0:02:11.400 do they think I'm gonna fall on the side of no, 0:02:11.560 --> 0:02:13.440 you're being way too cheap. You gotta get those pictures. 0:02:13.560 --> 0:02:15.280 Or if I'm like, well, I'm a photographer, I can 0:02:15.280 --> 0:02:18.440 just take my own pictures. I'm frugal. Uh. That being said, 0:02:19.040 --> 0:02:22.320 I think you are being frugal because I'm with you. 0:02:22.480 --> 0:02:26.840 We we only rarely purchase the pictures if they're just outstanding. Otherwise, 0:02:27.080 --> 0:02:28.679 when we get the little link and they say that 0:02:28.800 --> 0:02:30.160 you can go look at the pictures, you know, I 0:02:30.200 --> 0:02:33.240 look at them and then I screenshot them, and I'm 0:02:33.280 --> 0:02:35.720 able to preserve the memory that that picture was taken 0:02:35.840 --> 0:02:37.080 and you can see a little bit of it, and 0:02:37.080 --> 0:02:38.679 they got the water mark. It's got the watermark on it, 0:02:38.720 --> 0:02:39.880 so I'm never going to print it out, but I 0:02:39.880 --> 0:02:42.200 can still save it in photos on my computer, and 0:02:42.240 --> 0:02:44.040 I can still go back and see the cute smiles 0:02:44.080 --> 0:02:46.519 and kind of bring back all those feelings without having 0:02:46.560 --> 0:02:48.600 to actually pay thirty bucks for an eight by ten. 0:02:48.680 --> 0:02:50.400 You know, you know what I'm saying. The school pictures 0:02:50.400 --> 0:02:53.600 are crazy expensive, and obviously, like someone comes out and 0:02:53.600 --> 0:02:55.400 spends a lot of time and and they do a 0:02:55.440 --> 0:02:57.560 good job. They take good photos, and sometimes we do 0:02:57.600 --> 0:02:59.520 buy them though, I mean, if they're really good I mean, 0:02:59.520 --> 0:03:01.799 we've purchased them before because I'm like, I gotta have that. 0:03:01.880 --> 0:03:04.560 You know, it's just just too cute. The same here too. Yeah, 0:03:04.600 --> 0:03:07.160 we have to I've got We've definitely bought school photos 0:03:07.200 --> 0:03:08.560 in the past, but this year we were like, you 0:03:08.560 --> 0:03:10.440 know what, We're not gonna do it. And part of 0:03:10.440 --> 0:03:13.120 the reason was because the girls had just been in 0:03:13.160 --> 0:03:15.920 a wedding and they're the just super adorable pictures that 0:03:15.960 --> 0:03:18.280 we just recently had, both of them, and so we're 0:03:18.320 --> 0:03:20.600 not going to spend the extra sixty bucks to get 0:03:20.639 --> 0:03:23.200 this picture package. It's not because I don't love the 0:03:23.320 --> 0:03:24.840 I mean, obviously I went through to look at the 0:03:24.880 --> 0:03:27.760 pictures and they were freaking adorable, and it was really hard. 0:03:27.760 --> 0:03:29.680 I was like, oh, maybe it's worth the money. I 0:03:29.720 --> 0:03:33.400 want it. But yeah, we decided to forgot it because 0:03:33.440 --> 0:03:35.920 we've got pictures from a lot of other events, and 0:03:35.960 --> 0:03:38.160 you know, phones have gotten so good. I'm taking good 0:03:38.160 --> 0:03:40.640 pictus of my kids all the time, so plus, you know, 0:03:40.720 --> 0:03:43.200 a good photographer, and anytime our families get together and 0:03:43.200 --> 0:03:45.080 I bring along the camera, we always try to get 0:03:45.120 --> 0:03:46.880 a decent family shot or try to get all the 0:03:46.880 --> 0:03:48.840 girls together, get them smiling, looking in the right direction 0:03:48.880 --> 0:03:51.440 and that that works pretty well. Yeah, so I think 0:03:51.480 --> 0:03:54.040 if you're sitting there between the ferns, like looking all perfect, 0:03:54.400 --> 0:03:56.120 but it's a little more real life when they're kind 0:03:56.120 --> 0:03:59.160 of screaming on each other in in mid slap. Yeah yeah, 0:03:59.200 --> 0:04:02.600 I know, right, get the lifelike poses of just crazy 0:04:02.600 --> 0:04:05.040 things happening. But yeah, I think for people that get 0:04:05.080 --> 0:04:08.480 that email about getting their kids school pictures, certainly, sometimes 0:04:08.520 --> 0:04:10.560 you want those little wallet sized pictures. You want to 0:04:10.560 --> 0:04:11.760 be able to hand them out to your friends and 0:04:11.800 --> 0:04:14.280 family members. And we've gotten them too before and they 0:04:14.320 --> 0:04:17.040 make great gifts oftentimes the four by sixes. Put them 0:04:17.080 --> 0:04:19.240 in a frame, give them to grandma, that kind of thing. 0:04:19.560 --> 0:04:21.960 But just don't feel obligated like you have to, especially 0:04:22.000 --> 0:04:23.839 if you already have good picks of of your kids 0:04:24.080 --> 0:04:26.159 from other outings. Yeah, and a quick tip if you 0:04:26.200 --> 0:04:28.080 do want to go ahead and purchase those pictures is 0:04:28.120 --> 0:04:30.159 to see if you can purchase the digital file. A 0:04:30.160 --> 0:04:32.960 lot of times they'll charge a certain amount, maybe even 0:04:33.120 --> 0:04:35.520 five bucks more than than one of the more expensive prints, 0:04:35.520 --> 0:04:37.919 So like an eight by ten might be like thirty bucks, 0:04:37.920 --> 0:04:39.760 like I mentioned, but you can get the file for 0:04:39.880 --> 0:04:42.760 thirty five bucks. Always up for that because you can 0:04:42.760 --> 0:04:44.479 spend a little bit more and then you have that 0:04:44.560 --> 0:04:46.680 file and you can obviously do whatever you want with it. 0:04:46.920 --> 0:04:50.240 But then go to a website like m picks dot com. 0:04:50.320 --> 0:04:53.400 That's m p i x dot com and they're a 0:04:53.400 --> 0:04:55.560 fantastic lab where you can get some really high quality 0:04:55.600 --> 0:04:59.599 prints at a consumer price point. But at the same time, 0:05:00.120 --> 0:05:03.159 lab is it's really good. They've got an entire professional 0:05:03.200 --> 0:05:05.279 line and a lot of the professional photographers that I 0:05:05.360 --> 0:05:08.839 know use them for their professional fancy prints that they're 0:05:08.839 --> 0:05:10.920 able to up charge and obviously make a profit. I 0:05:10.960 --> 0:05:12.560 don't want to give away all the secrets, but yeah, 0:05:12.640 --> 0:05:14.640 check out MPIs dot com. Good to get some of 0:05:14.680 --> 0:05:17.840 that insider knowledge, all right, I like it. Okay, let's 0:05:18.120 --> 0:05:20.719 quickly mention the beer that we're having on the show today, Matt. 0:05:21.080 --> 0:05:24.760 This is maple Vanilla Copra Kai, another one by Southern 0:05:24.800 --> 0:05:27.640 Grist Brewing Company. And thanks to Jamie for sending us 0:05:27.680 --> 0:05:29.760 peers yet again. This is the second one this week. 0:05:30.000 --> 0:05:32.680 What's the deal with copra Kai? So like cobra Kai, 0:05:32.880 --> 0:05:35.800 Like that's a karate kid. Yeah, and so it's like 0:05:35.839 --> 0:05:37.960 the do they do copro with the p Just so 0:05:38.040 --> 0:05:40.919 that they don't get sued. Probably, okay, that's my assumption. 0:05:41.760 --> 0:05:43.560 That was Okay, is there what or I didn't know 0:05:43.560 --> 0:05:45.800 if copra kai was an actual thing like something different, 0:05:45.880 --> 0:05:47.680 not that I know of, But you know what, I'm 0:05:47.680 --> 0:05:49.200 gonna reach back around to Jamie and ask him why 0:05:49.200 --> 0:05:50.760 they named it. That you should also ask him how 0:05:50.760 --> 0:05:52.760 he made this delicious beer because it smells like an 0:05:52.880 --> 0:05:55.360 entire dessert in my glass right here. So I'm excited 0:05:55.400 --> 0:05:57.159 for us to talk about this at the end of 0:05:57.160 --> 0:06:00.960 the episode. Yeah, Bouquet flavors. Alright, Matt out onto the 0:06:01.040 --> 0:06:03.800 topic at hand, and we're discussing the best way to 0:06:03.800 --> 0:06:06.919 pay down debt. We're debating the debt snowball versus debt 0:06:07.000 --> 0:06:10.919 avalanche approach. And the problem is that Americans are in 0:06:11.000 --> 0:06:14.320 debt and lots of it, student loan debt, car loan debt, 0:06:14.480 --> 0:06:17.680 credit card debt, mortgage debt, and it can be overwhelming 0:06:18.200 --> 0:06:20.800 and acting that debt in your life takes a toll 0:06:20.839 --> 0:06:23.080 not only off of your money issues, but it takes 0:06:23.120 --> 0:06:25.320 a massive weight off your mind. And there was a 0:06:25.360 --> 0:06:27.800 study that they did in Singapore recently that found that 0:06:27.800 --> 0:06:31.480 folks who had massive mortgage utility and municipal debt paid 0:06:31.480 --> 0:06:35.520 down by a charity, they performed better in cognitive function tests. 0:06:35.960 --> 0:06:40.760 Anxiety disorders massively decreased, and the ability to forego instant 0:06:40.760 --> 0:06:44.919 gratification also increased. So not having this debt in your life, 0:06:45.240 --> 0:06:47.479 not only does it make your finances start to dear, 0:06:47.680 --> 0:06:49.680 it makes your brain function better. And I just thought 0:06:49.680 --> 0:06:51.960 that was like fascinating that having a lot of debt 0:06:51.960 --> 0:06:55.800 in our lives has terrible effects on our brains. Yeah, Joel. 0:06:55.839 --> 0:06:57.760 One of the things they mentioned was that how the 0:06:58.080 --> 0:07:00.880 real cost of being in some stantial amounts of debt, 0:07:00.920 --> 0:07:03.800 like that, how it's not completely reflected in the numbers. 0:07:03.839 --> 0:07:05.720 It's not completely reflected in how much you owe or 0:07:05.760 --> 0:07:08.159 how much you make or your net worth. You see 0:07:08.160 --> 0:07:10.800 it as well, like like you said, in your mental health. 0:07:11.000 --> 0:07:14.880 And it's unfortunate that that total effects is oftentimes overlooked 0:07:14.880 --> 0:07:17.520 because it is mental. But fact is, you know, no 0:07:17.600 --> 0:07:20.040 one in all likelihood is gonna be showing up to 0:07:20.040 --> 0:07:22.600 pay off your debt. And we don't take the stance 0:07:22.640 --> 0:07:25.720 that all debt is bad, but if you are rolling 0:07:25.760 --> 0:07:29.080 in consumer debts and that's stressing you out, Assessing which 0:07:29.080 --> 0:07:32.280 of the different strategies to take can be helpful. Yeah, 0:07:32.280 --> 0:07:35.120 because the quicker you can eliminate even just one debt 0:07:35.160 --> 0:07:37.680 out of your life. Right, there's that breathing room. It's 0:07:37.680 --> 0:07:40.800 gonna lessen your overall anxiety in relation to your debt. 0:07:41.160 --> 0:07:42.720 And first we want to mention that if you're in 0:07:42.920 --> 0:07:46.280 overwhelming amounts of debt, well it's really important to consider 0:07:46.320 --> 0:07:49.520 getting credit counseling from a place like NFCC and you 0:07:49.520 --> 0:07:51.920 can check them out at NFCC dot org. And if 0:07:51.960 --> 0:07:55.560 your debt exceeds fift of your annual income, well that 0:07:55.760 --> 0:07:57.480 is in all likelihood the best place for you to 0:07:57.560 --> 0:08:00.320 head to get some free credit counseling from your local 0:08:00.400 --> 0:08:04.040 NFCC affiliate. One other thing to consider before you know, 0:08:04.040 --> 0:08:05.840 we kind of dive into the different approaches to paying 0:08:05.840 --> 0:08:08.480 down debt. But let's talk for a second to about 0:08:08.520 --> 0:08:11.200 your interest rate. If you have a good amount of debts, 0:08:11.400 --> 0:08:14.560 you want to consider a balanced transfer. Credit cards will 0:08:14.560 --> 0:08:17.880 oftentimes offer a zero percent for elemented amount of time. 0:08:18.280 --> 0:08:20.680 Transferring your debt over to a new card like that 0:08:20.720 --> 0:08:23.520 will allow you some breathing room, give you some time 0:08:23.560 --> 0:08:25.320 to kind of figure out your approach and how you 0:08:25.360 --> 0:08:27.200 are going to pay down your debt. If you can't 0:08:27.200 --> 0:08:29.520 find a good balance transfer, consider calling your credit card 0:08:29.520 --> 0:08:32.920 company directly and see if you can get your interest 0:08:33.000 --> 0:08:35.000 rate lowered. From that same point, it's good to kind 0:08:35.000 --> 0:08:37.439 of go into those conversations with some knowledge. You want 0:08:37.440 --> 0:08:39.640 to do your homework ahead of time. But we've talked 0:08:39.640 --> 0:08:41.720 about this before, Joel, but it never hurts to ask, 0:08:41.960 --> 0:08:43.559 and you're not going to get that lower interest rate 0:08:43.880 --> 0:08:46.280 uh and pay less unless you ask for it. So 0:08:46.320 --> 0:08:48.280 in a minute, we're gonna talk about the debt snowball. 0:08:48.280 --> 0:08:50.680 We're gonna talk about the debt avalanche, some pros and 0:08:50.720 --> 0:08:53.280 cons to both, But first we're gonna take a quick break. 0:09:01.880 --> 0:09:04.400 All right, Matt, let's get right into it. First. We'll 0:09:04.400 --> 0:09:07.880 talk about the debt snowball approach. And this approach is 0:09:08.040 --> 0:09:13.160 all about psychology, not as much about math, but psychology, 0:09:13.200 --> 0:09:15.240 as it turns out, is crucial when it comes to 0:09:15.320 --> 0:09:18.160 how we handle our money. In fact, it's often more 0:09:18.200 --> 0:09:21.240 important than just the nuts and bolts and knowing how 0:09:21.280 --> 0:09:23.360 the math works. And in fact, just like we talked 0:09:23.360 --> 0:09:25.559 about with that Singapore study that we mentioned at the 0:09:25.600 --> 0:09:28.080 beginning of the show, it's pretty obvious that debt has 0:09:28.120 --> 0:09:31.560 a clear effect on our psyche, and the debt snowball 0:09:31.600 --> 0:09:34.760 approach is actually an attempt to kind of maximize positive 0:09:34.800 --> 0:09:38.360 psychological impact of debt paid down as opposed to the 0:09:38.880 --> 0:09:43.680 mathematical and financial best approach to paying down your debt. Yeah, 0:09:43.760 --> 0:09:46.560 this is the Dave Ramsey approach. And the argument often 0:09:46.640 --> 0:09:49.040 goes is that if it's all about the math, then 0:09:49.080 --> 0:09:50.920 you wouldn't be in debt in the first place. You know, 0:09:50.960 --> 0:09:53.280 if you're paying attention to the numbers, the interest rates 0:09:53.320 --> 0:09:55.560 the debt, you would know from the very outset that 0:09:55.640 --> 0:09:57.439 going into debt isn't going to work out for you. 0:09:57.800 --> 0:09:59.920 And so let's go ahead now and talk about the 0:10:00.000 --> 0:10:02.480 way it works and the debt snowball approach. You are 0:10:02.480 --> 0:10:05.000 going to pay the minimums on all your balances, but 0:10:05.080 --> 0:10:08.000 then you're going to attack and pay off your debt 0:10:08.440 --> 0:10:13.439 with the smallest balance first. Once that debt is eliminated completely, 0:10:13.720 --> 0:10:16.200 you get to roll those payments that we're going to 0:10:16.280 --> 0:10:19.559 that small debt to the debt with the next smallest balance. 0:10:19.840 --> 0:10:22.240 And so it's called the debt snowball effect because essentially, 0:10:22.280 --> 0:10:24.280 think of you know, you start off with a small 0:10:24.320 --> 0:10:26.400 balance and then you roll it over to the next 0:10:26.559 --> 0:10:28.920 largest balance and it gets bigger and bigger and bigger, 0:10:29.280 --> 0:10:31.760 not unlike a snowball that you're rolling down the hill. 0:10:32.160 --> 0:10:36.720 Makes sense, Yeah, it's I mean really psychologically that makes 0:10:36.760 --> 0:10:38.560 a lot of sense, right, because let's say you have 0:10:38.600 --> 0:10:41.440 seven overall debts that you're looking to pay off, and 0:10:41.520 --> 0:10:43.199 you get a quick win by paying the first one 0:10:43.240 --> 0:10:45.280 off because the balance is super low. It feels good, 0:10:45.400 --> 0:10:47.880 It feels good, and then you're motivated to do just 0:10:47.920 --> 0:10:50.480 a little bit more and you actually have a little 0:10:50.520 --> 0:10:53.240 bit more money then to put towards that second debt 0:10:53.480 --> 0:10:56.480 because that the other one, that first one, it's gone. Now, yeah, 0:10:56.679 --> 0:10:58.320 you don't just have more money to put towards it, 0:10:58.320 --> 0:10:59.959 but you have more steam, like you've got that one 0:11:00.000 --> 0:11:02.360 men um rolling to Yeah. Completely, So I think this 0:11:02.440 --> 0:11:05.000 path can provide wins more quickly along the way, can 0:11:05.120 --> 0:11:09.400 keep you motivated, and interestingly enough, the most studies actually 0:11:09.400 --> 0:11:12.640 show that the results are more favorable with a debt 0:11:12.760 --> 0:11:16.400 snowball approach than the debt avalanche approach, which makes sense 0:11:16.440 --> 0:11:19.480 because when we're factoring in the psychology of how we 0:11:19.520 --> 0:11:22.000 approach our money and our debts, I mean, this is 0:11:22.040 --> 0:11:25.280 the kind of strategy that keeps someone engaged towards paying 0:11:25.320 --> 0:11:28.520 down their debts as quickly as possible, whereas the debt avalanche, 0:11:28.559 --> 0:11:30.640 which we're gonna talk about in just a second, doesn't 0:11:30.840 --> 0:11:33.440 quite have that same effect. Yeah, those are the legit 0:11:33.480 --> 0:11:36.240 studies to like Harvard, you know, all the good schools, 0:11:36.320 --> 0:11:38.560 not the not the crappy schools. And one my Kanasas 0:11:38.600 --> 0:11:40.560 State University coming out with that. You know, how don't 0:11:40.559 --> 0:11:42.680 you hate k s U. Dog that's a good spot. 0:11:42.920 --> 0:11:45.360 So the debt snowball it makes the most sense from 0:11:45.360 --> 0:11:48.120 my psychological standpoint, but it doesn't when it comes to 0:11:48.120 --> 0:11:50.560 the number's jole. And that's when sort of the math 0:11:50.679 --> 0:11:53.000 nerds will jump all over your case. And what they 0:11:53.000 --> 0:11:55.520 would propose is for you to look at the debt avalanche. 0:11:55.920 --> 0:11:57.679 So why don't you tell us about that? All right? 0:11:57.760 --> 0:12:02.240 So the debt avalanche is all about math and not psychology, 0:12:02.320 --> 0:12:05.199 so kind of the complete opposite of the debt snowball approach. 0:12:05.520 --> 0:12:08.560 When you take the debt avalanche approach again, you're still 0:12:08.600 --> 0:12:11.160 paying the minimums on every single balance except for one. 0:12:11.600 --> 0:12:14.160 But the debt that you're prioritizing paying off is the 0:12:14.200 --> 0:12:16.720 debt that has the highest interest rate, as opposed to 0:12:16.800 --> 0:12:19.800 your debt that has the lowest overall balance, And there's 0:12:19.800 --> 0:12:22.560 certainly a chance that your highest interest rate debt could 0:12:22.559 --> 0:12:24.880 also be your lowest balance, in which case win win. 0:12:24.960 --> 0:12:27.400 You're kind of tackling both methods at the same time. 0:12:27.679 --> 0:12:30.800 But yeah, the debt avalanche approach is for the math 0:12:30.880 --> 0:12:33.920 nerds out there that can still be just as focused 0:12:33.920 --> 0:12:37.800 paying off debt without that psychological benefit of paying off 0:12:38.160 --> 0:12:41.080 certain debts more quickly. All right, Joel, quick question for you. 0:12:41.120 --> 0:12:45.480 Then the snow metaphor with the snowball makes sense, right, 0:12:45.559 --> 0:12:48.600 Like you've got your quickly gaining steam starting off with 0:12:48.640 --> 0:12:51.319 a small little snowball, and it rolls over and gets 0:12:51.360 --> 0:12:54.440 bigger and bigger and bigger. That equates to the size 0:12:54.480 --> 0:12:58.520 of the debt that you're attacking. But how does it 0:12:58.559 --> 0:13:00.679 work with the avalanche then? I guess like you're starting 0:13:00.720 --> 0:13:03.880 off big? Yeah, I guess so. I don't necessarily think 0:13:03.920 --> 0:13:07.160 that that, uh, that perfect metaphor. No, it's definitely an 0:13:07.160 --> 0:13:09.320 imperfect metaphor, that's for sure. And I don't know where 0:13:09.480 --> 0:13:11.480 if there's like any like yellow snow involved in this 0:13:11.520 --> 0:13:14.440 metamor or anything like that. I think those are like 0:13:14.480 --> 0:13:17.599 tidle loans completely away from the gotcha. I think we 0:13:17.640 --> 0:13:20.199 could probably come up with some other really cool metaphors 0:13:20.240 --> 0:13:22.199 when it comes to snow for paying down your debt. 0:13:22.480 --> 0:13:24.040 But yeah, I think someone just kind of tried to 0:13:24.040 --> 0:13:26.240 come up with a cute alternative to the debt snowball. 0:13:26.600 --> 0:13:28.320 But with avalanche, I guess you're kind of focusing on 0:13:28.320 --> 0:13:30.520 the large interest rates, kind of going after the big 0:13:30.559 --> 0:13:32.640 impact stuff first, and then by the end of it, 0:13:32.640 --> 0:13:34.760 you're kind of focusing you know, I guess the end 0:13:34.800 --> 0:13:36.440 of the avalanche, there's just a little bit of snow 0:13:36.440 --> 0:13:38.360 trickling down the mountain at the very end, and maybe 0:13:38.360 --> 0:13:40.600 that's your smaller interest rate loans that kind of dies 0:13:40.640 --> 0:13:44.080 out right. Yeah. Yeah, So really, the debt avalanche approach, 0:13:44.400 --> 0:13:47.360 it could prevent you from attacking your debt as intently 0:13:47.640 --> 0:13:50.520 as you might otherwise be inclined to do. But if 0:13:50.559 --> 0:13:52.840 you are a really good planner and you can stay 0:13:52.880 --> 0:13:55.880 the course, well, the debt avalanche, or sometimes it's also 0:13:55.960 --> 0:13:58.840 called debt laddering, well that's likely the best approach for 0:13:58.880 --> 0:14:01.880 you because you're going to pay off your debts in 0:14:02.040 --> 0:14:04.400 a little bit less time, and you're gonna pay less 0:14:04.520 --> 0:14:08.440 overall in interest to your creditors, so Joel. Overall, if 0:14:08.440 --> 0:14:10.199 I had to pick like one over the other, I 0:14:10.240 --> 0:14:12.280 think I'm gonna end up on like on team snowball 0:14:12.600 --> 0:14:15.240 because for most people, even though it doesn't make the 0:14:15.280 --> 0:14:17.760 most sense from a financial standpoint, when you're only looking 0:14:17.800 --> 0:14:20.320 at the numbers, Like we said earlier, it's not all 0:14:20.360 --> 0:14:23.800 about the numbers. There's so much psychology involved. And I 0:14:23.800 --> 0:14:25.920 think for a lot of people, in particular, if you're 0:14:25.920 --> 0:14:28.200 struggling with debt and you've been working for a while 0:14:28.280 --> 0:14:30.320 at trying to pay down your debt, I think in 0:14:30.360 --> 0:14:33.440 those cases specifically, that the debt snowball is where it's at. Yeah, 0:14:33.480 --> 0:14:35.480 I think up until probably last year, I would have 0:14:35.520 --> 0:14:37.640 been team Avalanche all the way, and I would have 0:14:37.800 --> 0:14:40.640 all about the numbers. I would completely disagreed with you, 0:14:40.920 --> 0:14:43.240 because I do think, like, why would you pay more 0:14:43.240 --> 0:14:46.040 in interest than you have to? I don't like that idea. 0:14:46.320 --> 0:14:48.480 I don't like the idea of paying down a five 0:14:48.520 --> 0:14:51.880 percent debt first when you have a nine credit card 0:14:52.120 --> 0:14:54.560 chilling there like that. That doesn't make any sense to me. 0:14:54.720 --> 0:14:56.800 And so I think I still probably reside a little 0:14:56.840 --> 0:14:59.960 bit more on team Avalanche side and paying off your 0:15:00.040 --> 0:15:02.720 highest interest rate debts as quickly as possible, and then 0:15:02.760 --> 0:15:05.880 moving on to those lower interest rate debts. But yeah, recently, 0:15:06.120 --> 0:15:08.920 one of the loan balances on one of my rental 0:15:08.960 --> 0:15:12.560 properties is getting pretty low, and it's are you feeling it? 0:15:13.000 --> 0:15:14.720 I am to pay it off? I am. But the 0:15:14.760 --> 0:15:17.360 thing is, the interest rate is so low that it 0:15:17.400 --> 0:15:19.960 really doesn't make sense for me to prioritize the payoff, 0:15:20.280 --> 0:15:22.280 and so I'm just having to kind of sit on 0:15:22.360 --> 0:15:24.680 my hands and forget about it and not even remind 0:15:24.680 --> 0:15:27.760 myself that we're getting to that point because there are 0:15:27.800 --> 0:15:30.280 other priorities in my life. I don't want to focus 0:15:30.280 --> 0:15:32.560 on that at this point in time. It would make 0:15:32.560 --> 0:15:34.960 more sense for me to put my hard earned dollars 0:15:35.080 --> 0:15:38.480 towards the market. Yeah, towards in the market, or towards 0:15:38.520 --> 0:15:41.760 a higher interest rate loan that I have on another 0:15:41.800 --> 0:15:45.600 rental property. But I completely understand the itch, especially as 0:15:45.640 --> 0:15:48.360 you get close to paying something off, it just kind of, oh, 0:15:48.440 --> 0:15:50.400 you want to just finish it off. I think it 0:15:50.800 --> 0:15:53.480 is a difficult decision, but really picking your path and 0:15:53.520 --> 0:15:55.560 sticking to it makes a whole lot of sense. Yeah, 0:15:55.560 --> 0:15:58.200 And I'll argue in favor of the debt avalanche because 0:15:58.240 --> 0:16:00.800 I think there's are some situations where it does make sense, 0:16:01.000 --> 0:16:03.560 because the argument will go against it that well, if 0:16:03.560 --> 0:16:05.520 you're paying attention to the numbers, right, you like you 0:16:05.520 --> 0:16:07.720 would have never ended up in debt in the first place. 0:16:08.080 --> 0:16:10.000 But I think there are a lot of folks who 0:16:10.360 --> 0:16:12.200 for a period in their life, maybe when they were younger, 0:16:12.320 --> 0:16:14.360 they didn't they didn't pay attention to the numbers. They 0:16:14.360 --> 0:16:17.000 didn't pay attention to how much they're spending, how much 0:16:17.040 --> 0:16:19.360 debt they were accruing, and there's a moment where they 0:16:19.360 --> 0:16:21.720 wake up. They kind of have an enlightening, whether that 0:16:21.840 --> 0:16:24.560 be uh, they're getting married, or they read a great book, 0:16:24.760 --> 0:16:26.360 or they see maybe what their friends are doing with 0:16:26.400 --> 0:16:28.560 their money, and all of a sudden they're realizing that, oh, 0:16:28.600 --> 0:16:30.840 wait a minute, I'm doing some terrible things with my money. 0:16:31.240 --> 0:16:33.480 And in those cases where there's a switch, like when 0:16:33.520 --> 0:16:36.400 something happens like that and the the lights kind of 0:16:36.400 --> 0:16:38.720 turn on in their head, if they can be disciplined 0:16:38.760 --> 0:16:42.080 and stick with their plan, I think the debt avalanche 0:16:42.080 --> 0:16:44.680 makes total sense in those scenarios. Matt, that's a good point. 0:16:44.680 --> 0:16:46.880 And you know what, I think there might actually be 0:16:46.960 --> 0:16:50.240 a third option here for people something to consider. And 0:16:50.280 --> 0:16:52.200 I don't think I've ever heard anyone else ever talk 0:16:52.240 --> 0:16:54.280 about this, and we should kind of come up with 0:16:54.280 --> 0:16:57.160 our own name for it, maybe the debt snow lanch 0:16:57.760 --> 0:17:00.920 uh snow Cone method. So it's kind of a little 0:17:00.920 --> 0:17:02.920 more hybrid approach. And we will tell you what we 0:17:03.000 --> 0:17:13.920 mean by that right after the break. All right, Matt, 0:17:13.960 --> 0:17:16.280 in a second, we're going to talk about how to 0:17:16.400 --> 0:17:19.560 actually begin these methods, how to implement them into your 0:17:19.560 --> 0:17:22.520 lives in order to kind of start crushing that debt. 0:17:22.800 --> 0:17:24.639 But first let's kind of talk about this hybrid approach 0:17:24.680 --> 0:17:27.240 that we think might make a lot of sense for folks. Yeah, Joel, 0:17:27.400 --> 0:17:29.359 you know, it is a sort of a hybrid approach, 0:17:29.359 --> 0:17:31.520 and you know, I don't think we're original thinkers here. 0:17:31.800 --> 0:17:33.639 Sure a lot of folks have done this, but paying 0:17:33.680 --> 0:17:35.760 off that really high interest rate debt first and then 0:17:35.760 --> 0:17:39.840 prioritize those balances that have the smaller balances next. For instance, 0:17:39.920 --> 0:17:41.880 high in straight credit card debt that you might have, 0:17:42.240 --> 0:17:44.800 that's what you're gonna want to cut most quickly. In 0:17:44.840 --> 0:17:47.520 a car note at five PC isn't a priority in 0:17:47.560 --> 0:17:49.600 the same way, But once you have those credit cards 0:17:49.600 --> 0:17:52.680 out of the way. You can then work towards paying 0:17:52.720 --> 0:17:54.480 off your car just to kind of be rid of 0:17:54.520 --> 0:17:57.439 it once that balance starts getting lower, even if you 0:17:57.560 --> 0:18:00.600 have student loan debts, say at seven percent. So I 0:18:00.640 --> 0:18:02.760 think in this hybrid approach, what you're doing is you're saying, 0:18:03.080 --> 0:18:06.600 what's the disparity and interest rate between that and the 0:18:06.600 --> 0:18:08.760 rest of my debts, And if it's a big disparity, 0:18:08.800 --> 0:18:10.560 like if you have that one credit card that's at 0:18:10.640 --> 0:18:15.520 nineteen interest, you're going to want to prioritize that first, 0:18:15.880 --> 0:18:18.200 no matter what if all the rest of your debts 0:18:18.359 --> 0:18:21.680 fall in that five to seven percent range exactly. Basically 0:18:21.720 --> 0:18:24.640 you're looking for an outlier that you want to eliminate first. Yeah, 0:18:24.680 --> 0:18:27.280 and then it doesn't really matter what your order is 0:18:27.480 --> 0:18:29.680 after you pay that one off first, Right, it doesn't 0:18:29.720 --> 0:18:31.879