Debt Buster Formula
In all of the reading I’ve done about how people can eliminate their debt more quickly, there are two basic approaches that consistently manifest themselves: The Snowball or The Avalanche methods. One starts with paying more on the debt’s highest interest rate, the other paying more on the debt’s smallest account balance.
Both of these debt reduction methods are effective, and I would be remiss to not state that in all of the reading I have done on personal financial blogging sites, there is a tremendous amount of equally important material addressing the psychology of getting out of debt. It is understood that you must be committed to making this a priority in your life, and it requires creative ways to identify new sources of funds to accomplish this goal.
What you need to be doing, why you need to do it, how you can find the funds to do it with, and how you will feel after you accomplish these tasks can absolutely be life-changing.
But, all that being said, we feel there is another more superior formula to pay off debt.
Over 20 years ago, I met a Canadian high school math teacher. His excitement for his process of getting out of debt was infectious, and he was eager to see if this might help others when we work with our clientele.
He acknowledged the two methods I mentioned above, paying off the highest interest first or the lowest account balance first, both effective if you were committed to them. But each method only uses one number, either the balance owed or the interest rate. And using only one number is not a formula. 1 is just one. You need more than one number to get a formula. 1 + 1 = 2 is a formula.
A faster, better, more efficient way of paying down debt is to use two key numbers associated with the debt you owe: the account balance and the minimum payment due.
The premise is simple. Divide the minimum payment due into the account balance owed. You’ll get a whole number.
By dividing the minimum amount due into the balance owed, you are using two numbers and this simple formula shows you which debt to pay more on.
If you haven’t asked yourself about the minimum amount due and how it’s calculated, you might consider it because that’s where the balance owed and interest rate both come into play for efficiently prioritizing your debt.
Simply, the interest rate and the balance owed are their own formulas used to create the minimum payment due.
Here’s an example, if you had two account debts.
Account debt #1:
The account balance is $6,780 and the minimum payment due is $154.
$6,780 divided by $154 = 44.026. Rounding off to a whole number of 44, your ‘debt factor’ is 44.
Account debt #2:
The account balance is $4,908 and the minimum payment due is $139.
Again, $4,908 divided by $139 = 35.309. Rounding off to a whole number of 35, your ‘debt factor’ is 35.
Given the example of these two accounts, make the minimum payment on the first account debt, then on the second account debt. In addition to the minimum, pay whatever extra available dollars you have on this account.
Why the second card?
Because the ‘debt factor’ number was the smaller of the two.
You always pay more on the smallest ‘debt factor’. Always pay the smallest one!
I will tell you the Canadian math teacher who shared this with me adamantly stated that this was the most cost-efficient way to pay off debt faster. Having completed hundreds of calculations using every variable he could come up with when it came to debt payments, this method was the quickest and most superior way of getting rid of the debt. Don’t let the fact that you need to complete some basic math dissuade you!
Judge for yourself. This is why I’m sharing this idea with you.
You simply plug in the requested information for any debts you may have and the app will calculate the ‘debt factor’ for each debt.
Do this for any and all of your debts: credit cards, student loans, car loans, home mortgage, etc., and you’ll know right away which debt has the smallest ‘debt factor’ number. You’ll know where to focus your attention so you can make those extra payments toward that debt.
You’ll want to repeat this every month when your new statements come – update your balance owed and the minimum payment numbers, then the app recalculates the ‘debt factor’ for each of your debts.
If you happen to do a zero-interest balance transfer from one account to another, be sure to update the app when the statements come. That zero-balance transfer could have a big impact on the ‘debt factor’ number for those accounts affected by the transfer.
Don’t forget, when you get the smallest ‘debt factor’ debt paid off, you’ll then focus your efforts and funds on the debt with the new smallest ‘debt factor’.
This process will continue to propel you toward the ultimate goal of no debt.
We would appreciate knowing your thoughts on the Debt Buster Formula TM. Whether you love it or hate it, let us know.
Congratulations for taking the next step toward your goal of reducing and eliminating your debt!