Having debts is always dangerous and threatening.
Maybe you want to rebuild a strong financial foundation. You want to clean your financial mess (debt) as fast as you can. By doing so, paying the unnecessary interest rates will be avoided. This is definitely the main topic of this article. However, just one quick disclaimer: The method presented below does not work for those who are hardly paying month after month.
The Ladder Method
Before going further, we have to determine first one particular distinction. We recently talked about paying off debt through the so-called “Snowball Method,” or the way of paying small debts as fast as possible without having a psychological issue due to being indebted. Snowball can work for many people, but, for experts, it’s not the most effective and efficient way to use. Why? It is focusing only on the psychological aspect, not on the debt itself.
By using the Ladder Method, however, debt cleansing can be totally achieved. This process is for those who are very much concerned on the mathematical figures. You have to remember that the term “fast” is the main keyword here. You don’t need to close your individual accounts speedily as this way will help you cleanse your financial burdens in a fast manner.
Step by Step to Pay Off Debt Fast
Step 1: List down all your debts in order (from largest to smallest interest rates). Let’s use the sample from Clearpoint:
| Account Name | Amount | Interest Rate | Min. Monthly Payment |
| Macy’s Card | $350 | 18% | $20 |
| Private Student Loan | $850 | 13% | $50 |
| Car Payment | $1,000 | 7% | $85 |
| Stafford Student Loan | $675 | 5% | $40 |
| Stafford Student Loan | $500 | 4.5% | $35 |
Step 2: Reserve the funds to make minimum monthly payments. Moreover, you need to establish some extra funds that must be intended for accounts with the largest interest rates. In your monthly spending, you have to set aside at least $500 for your debts. But take note that out of that figure, you need to pay a minimum of $230, while $270 will be used as a buffer fund. Take a look at the mathematical explanation below:
| Account Name | Amount | Interest Rate | Min. Monthly Payment |
| Macy’s Card | $65.25 | 18% | $20 |
| Private Student Loan | $809.21 | 13% | $50 |
| Car Payment | $920.83 | 7% | $85 |
| Stafford Student Loan | $637.81 | 5% | $40 |
| Stafford Student Loan | $466.88 | 5% | $35 |
You will notice that you can most probably close Macy’s account after the first month. You’re paying at a lower percentage rate than the Macy’s account you eventually close while paying off your other debts. With this process, you can save more money in a long-term perspective. The next month will be amazing. You can then close the first debt you’re paying. Based on computation, you can have $66.23 being paid off considering the interest rate of the Macy’s account you’re closing. Then the buffer fund or surplus will amount to $223.77 on the next account, for instance, a private academic loan. You have to keep in mind that our student loan will start from a balance of $809.21 and will lower to $767.98 after the interest rate is computed. However, because you finally closed such first account, you still have a surplus amounting to $223.77. Then, the student loan will decrease to $544.21! It’s great!
Main Reason Why Debt Ladder Method Really Works!
Generally speaking, the principal amount, or the amount before interest rate is incurred, is not as significant as the interest rate per se. It is so due to the fact that an interest rate is determined through the growth of your debt and your way of paying it monthly. Through this ladder method, you will be able to control or minimize the growth of your interest rates. In other words, you pay less.
The Fastest Way Does Not Work for Everyone
When talking about the way to pay off your debt using snowball, again, this is only to prevent a psychological burden. The thing is that only debt ladder method can do the difference. Even if this particular process can allow you to pay your debt more efficiently, be reminded that you’re considering your overall debt. So there’s a possibility that it would take time for you to close all your accounts fully. In the examples given above, we can do it more promptly. But this is not going to be the case always. Honestly, to close a particular account is really working for people who are trying to pay their debt fast. Every time you fully paid an account, you’d be able to reach a certain milestone of your life. The most important thing here is that you know that by using the ladder method, you will be given a wonderful opportunity to pay off debt quickly.
By expecting prompt results, you will be frustrated, to say the least. If you expect too much, then this ladder method is not good for you. This is just a piece of idea that must be practiced brilliantly. You don’t want to be discouraged, aren’t you? If you can’t exercise well the steps of the ladder method, then do the snowball method. But if you’re great in making long-terms plans and can wait for the right time to be gratified, you can use the ladder method. That’s why it’s the best and most effective method to pay off your debts; but, be “patient.”
Making a Decision to Pay Off Debt Based on the Kind of Debt
You might reflect on this: “Is the ladder method better than the snowball one in paying all debt accounts?”
Honestly, again, the answer is either “YES” or “NO.” The ladder method, as discussed above, is more effective and efficient than the snowball strategy only if you understand its principles well. It will then let you pay off all your accounts fast. However, the snowball techniques can work greatly for your small accounts. What are those accounts? They can be your retail credit cards, like Old Navy’s, Macy’s, etc. Eventually, the ladder steps are suitable for your larger accounts, for instance your academic loans.
