Matt Schulz, Chief Credit Analyst, Lending Tree
@matthewschulz @LendingTree
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TRANSCRIPT:
In dealing with that avalanche and snowball are a couple of popular ways to pay off debt. If you owe big money. Matt Charles, the chief credit analyst at LendingTree, is here. Your company did a study on both methods. What did you find? Yeah, it’s a question a lot of people ask when they hear about these methods. And the truth is that it really does depend on your circumstances.
We just did a report here at LendingTree where we looked at average amounts and average interest rates on student loans, auto loans, personal loans and credit cards to see in which scenarios that avalanche worked better and snowball worked better. And the truth is that in some cases, there is absolutely no difference in the amount of money that you save over time between avalanche and snowball.
But in some cases with avalanche, you can end up saving $1,000 or more and cutting significantly more time off of your payoff amount. How does the avalanche system work? Avalanche is all about paying the highest interest loan first for most people in this country, that’s going to be their credit card. So with Avalanche, the idea is to is to tackle the loan with the highest interest first, because following the math, that is the best way to minimize the total amount of interest that you pay over the life of those balances.
And ultimately, the goal, right, is to pay these debts down as quickly and as cheaply as possible. And what we found is that there are plenty of scenarios in which avalanche is the most effective tool for paying down those loans as quickly as possible. Okay. Now onto the snowball approach. Snowball takes a difference approach, and with Snowball, it’s more of a psychological thing.
It’s more of a motivational thing when it comes to making the decision. Snowball is all about attacking the lowest loan amounts first in order to rack up some quick wins that can get you excited, get you motivated to keep going. It may be a personal loan, it may be a credit card. It may even be an auto loan, depending on your your circumstances.
The whatever the loan type is with Snowball, the idea is that you pay off that loan with the lowest balance. First, get some big wins under your under your feet, get excited, get motivated, and keep moving forward. Because again, ultimately what we’re looking for is a method that is going to push you to get to the finish line.
Thank you very much, Matt. Thanks for having me and you talking excited. Go to business first where to see our show on TV.
