Getting Out of Debt Part 2

There are two well known theories to getting out of debt. Both work and there is really, no right or wrong system for getting out of debt.

Method 1-
Commonly called the Snowball method and popularized by David Ramsey. With this method you take your lowest total amount of debt owed, with no regard to the interest rate, and pay it off first. You then take the amount you were paying and added it to the payment of the next lowest debt; rolling the debt payoff money to the next debt. You continue that process till all debt is payed off. It works well over all. You will end up paying more in interest with this method on your higher amounts. It is the perfect method for you if you want to see a quick demise to specific debt or need to see quick results to stay motivated.

Lowest Debt First
US Bank Interest Rate Payment Minimum Payoff Time Months Payoff Amount
$550.00 20% (300.00) 1.877399865 $563.22
Payoff Time Years
0.1564499887 5/3/2016
Student Loan 2 Interest Rate Payment Minimum Payoff Time Months Payoff Amount
$2,200.00 6.55% (68.25) 35.55063574 $2,426.33
Payoff Time Years
2.962552978 4/3/2019
Student Loan 1 Interest Rate Payment Minimum Payoff Time Months Payoff Amount
$3,500.00 2.25% (50.00) 75.1102651 $3,755.51
Payoff Time Years
6.259188758 6/3/2025
Capitol One Interest Rate Payment Minimum Payoff Time Months Payoff Amount
$4,000.00 8.90% (200.00) 21.72872926 $4,345.75
Payoff Time Years
1.810727438 4/3/2027
Car Loan Interest Rate Payment Minimum Payoff Time Months Payoff Amount
$10,500.00 2.44% (280.00) 39.04643367 $10,933.00
Payoff Time Years
3.253869472 7/3/2030
Window Loans Interest Rate Payment Minimum Payoff Time Months Payoff Amount
$12,000.00 4.40% (250.00) 52.89257399 $13,223.14
Payoff Time Years
4.407714499 10/3/2034
Morgate Interest Rate Payment Minimum Payoff Time Months Payoff Amount
212000 4.50% (1,800.00) 155.7043173 $280,267.77
Payoff Time Years
12.97535978 9/3/2047

 

Method 2-
With this method you payoff the higher interest rates first. This method does not look at total amount owed on any one debt but just at the interest rate that you are being charged; typically this will be credit cards. Once you have the highest interest rate payed off you take that debt money and roll it to the next highest interest rate. This method will take longer to payoff some of the debts that may be smaller but have low interest rates. You will though, pay less in interest with this payment as you are getting rid of the higher interest rates first.

Highest Interest First
US Bank Interest Rate Payment Minimum Payoff Time Months Payoff Amount
$550.00 20% (300.00) 1.877399865 $563.22
Payoff Time Years
0.1564499887 5/3/2016
Capitol One Interest Rate Payment Minimum Payoff Time Months Payoff Amount
$4,000.00 8.90% (200.00) 21.72872926 $4,345.75
Payoff Time Years
1.810727438 2/3/2018
Student Loan 2 Interest Rate Payment Minimum Payoff Time Months Payoff Amount
$2,200.00 6.55% (68.25) 35.55063574 $2,426.33
Payoff Time Years
2.962552978 1/3/2021
Window Loans Interest Rate Payment Minimum Payoff Time Months Payoff Amount
$12,000.00 4.40% (250.00) 52.89257399 $13,223.14
Payoff Time Years
4.407714499 5/3/2025
Car Loan Interest Rate Payment Minimum Payoff Time Months Payoff Amount
$10,500.00 2.44% (280.00) 39.04643367 $10,933.00
Payoff Time Years
3.253869472 8/3/2028
Student Loan 1 Interest Rate Payment Minimum Payoff Time Months Payoff Amount
$3,500.00 2.25% (50.00) 75.1102651 $3,755.51
Payoff Time Years
6.259188758 11/3/2034
Morgate Interest Rate Payment Minimum Payoff Time Months Payoff Amount
212000 4.50% (1,800.00) 155.7043173 $280,267.77
Payoff Time Years
12.97535978 10/3/2047

 

There are also several formulas used in this spreadsheet 🙂 I kind of love these formulas and my spreadsheet so lets talk about the formulas used in the cells.

Payoff Time-
=NPER, the formula for the function is: NPER(rate, payment_amount,present_value, [future_value],[end_or_beginning]). Rate is the interest rate divided by 12 because you make 12 payments a year. Payment Amount is always going to be a negative number, hence the parentheses around those numbers. Present Value is how much you still have to payoff on the debt. Future Value is optional but set it to Zero as that is the goal. End or Beginning is when the payment is due in that period. 

Payoff Amount-
Is Payoff Time * Payment Minimum. This shows you how much you will actually pay on this debt to clear it out and not have it anymore. I like this because it helps motivate to payoff faster so you don’t owe more just in interest.

Payoff Date-
=EDATE, is the start date (previous debt’s payoff date) and the number of months (payoff time) after that date to calculate to. This is the date when you will be DONE with that debt!

Next we will compare the Two Methods side by side and see them in just the numbers.

Enjoy!

Advertisements

About Tara B.
Hi, I am Tara B. and its great to meet you!! I am an outgoing person with introvert tendencies. I have two amazing dogs that I love and adore! You will hear about them and their adventures a lot :D I also have the most amazing husband! Together he and I have Miss Go Go (you'll also see her referred to as Baby B) that was born in the spring of 2015. She is smart, quick learner, and loves to mimic everything she sees. I love to cook, bake, try to stay healthy, and read. I love to explore my area (and the world when life allows), and seek out fun things to do. You want more information just ask! I am horrible at writing "About You" sections...:) If you have any questions, comments, ect I can be reached at CraftsByTaraB@gmail.com.

What do you think?

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: