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(screenshot from: https://www.ramseysolutions.com/debt/debt-calculator)
Proverbs: 37:21- The wicked borrow and do not repay
As a professional financial advisor, it hurts my heart when I see these type of messages being distributed to the masses. Recently, I watched a video by Dr. John Kalu Osiri,
Director of the International Business Program, Associate Professor of Practice in Management and he was speaking on Strategic Management. He made some good points about identifying your core competencies, your objectives, and making sure they have some sort of external impact.
I feel the same way about managing debt. The question should be, what are your objectives? What are your strengths? And then we can decide what strategy you would like to use.
Understand that both the snowball technique and the avalanche technique are valid debt management strategies cut from the same analogy.
I get it.
Dave Ramsey makes a great point about building momentum and staying motivated. But in my opinion, how can you ignore the impact of the avalanche technique on debt?
Think about it, why do you think they call it the AVALANCHE technique...
and why do you think they call the strategy, he is proposing, the SNOWBALL technique?
When it comes to debt management, size does matter. Which one do you think will make the fastest and greatest impact on your finances?
Of course the Avalanche technique!
If you want an example on how that will work, you can check out my blog post about how to overcome financial stress and implement a debt management strategy.
But to be honest, my biggest quarrel is that he puts in bold "Debt isn't a math problem. It's a behavior problem".
Well, if that is the case, I guess I can throw away my calculator...I mean who needs it?!
Debt is LITERALLY a math problem. Debt is not a carnival game that can be manipulated as soon as you get close to the finish line.
You will avoid paying more interest over time with the Avalanche technique than the Snowball technique...PERIOD!
But you deserve an option, not a biased opinion.
Here are some things to consider when trying to figure out which technique to use.
Snowball Technique:
Too many lines of credit open with similar interest rates
Too many store credit cards with low balances and low credit limits
You want to set up a reward system for every time you pay off a credit card balance
Avalanche Technique:
You want to avoid paying as much interest as possible
You have high balance cards with high interest rates
Saving money makes you feel better than seeing a zero balance
You have to figure out what works for you. If you need help choosing based on your situation, you can always speak to a financial advisor.
One strategy is not better than the other, both have their advantages. The avalanche has a mathematical advantage, and snowball has a slight psychological one. The choice is yours.
BONUS TIP: Regardless of the method you choose, when you pay down your balance, you may want to think twice about closing it. Closing it may have a negative impact on your credit score, making it difficult to acquire loans in the future, which makes paying off your debt counter-productive.
Thank you for reading!
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About the blog:
Many Christians struggle with the seemingly conflicting views about our faith and the pursuit of financial gain. They were taught that poverty was piety and that a lack of money was the only way to truly detach themselves from the love of money. Our blog debunks some of those claims, teaches you that you can be rich and righteous, and at the same time fulfill your obligation to tithe and give to the less fortunate. We are dedicated to helping you become cheerful givers by organizing your personal finances, providing investment tips to help you create wealth, and encouraging you to create a gifting strategy that will make your family and God proud.
Meet the Author:
A.B. Ridgeway, MBA (info@abrwealthmanagement.com) is the owner and Christian Financial Advisor with A.B. Ridgeway Wealth Management. With a decade in the finance industry, his goal is to give believers clarity around the most confusing topic in the Bible, money, and tithing. A.B. Ridgeway helps tithing Christians become cheerful givers but unlocking their money-making potential, so they can prosper and be the great stewards of the wealth God has entrusted them with.
This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. This is strictly for information purposes. We recommend you speak with a professional financial advisor.