Debt Reduction

DEBT. It is a word that Americans love to hate, yet our country has become all too accustomed to being a debtor, and not a saver. Our nation is run on credit and its ability to borrow capital. Therefore, our country’s financial tendencies have spread to many Americans. Currently, in total, American consumers owe 11.86 trillion in overall debt, 90.1 billion in credit card debt, and 1.21 trillion in student loans.These numbers are not meant to be critical, but to initiate a change and release from our lending institutions. In order for Americans to overcome spending problems and credit reliance, they must think differently than the norm. Webster’s definition of Debt is: an amount of money that you owe to a person, bank, company, etc. Although that is an accurate statement, I would take it further than that. Debt is enslavery to a lending institution, hinders your ability to save, and creates perpetual cycles keeping today’s citizens in financial bondage. I can’t get any more raw than that. Let us hasten away from the enslavery of traditional lending institutions and create opportunity with our own capital.

How do I pay off my debt?

A common method in paying off debt, highly advocated by Dave Ramsey, is known as the debt snowball method. The debt-snowball method is a debt reduction strategy, whereby one who owes on more than one account pays off the accounts starting with the smallest balances first, while paying the minimum payment on larger debts. Once the smallest debt is paid off, one proceeds to the next slightly larger small debt above that, so on and so forth, gradually proceeding to the larger ones later. This method is also achieved where one pays off accounts on the highest interest rate first.

The debt snowball effect does work and you will pay off your debt with this method quicker than any other way. However, this strategy can potentially be narrow minded. There is nothing wrong with paying off debt. Being debt free is a great financial victory. However, one must look at all financial angles in paying off debt while using the debt snowball approach.

For instance, with the debt snowball approach, generally one is devoting most or all of his extra cash flow to the debt for an extended period of time. Therefore, depending on how long it takes one to pay off the debt, they are potentially losing the ability to save. This infringement leads to lost opportunity costs. A definition for lost opportunity cost is :The opportunity cost of using resources in a certain way is the value of what these resources could have produced if they had been used in the best alternative. Lost opportunity costs could lead to a great impact in one’s long term financial future. Lost money, along with losing the value of compounding interest can deters long term planning.

imply put, while paying off your debt with the debt snowball method, you just lost the opportunity for you capital to keep earning interest over a continuous period of time. Depending on one’s circumstances, there may be a better way for an individual to create a defensive and offensive financial game plan at the same time. Therefore, I will attempt to show you ways to save and pay off high interest rate debt at the same time. Below, I have provided videos and case studies. I hope this information provides great insight into how we can start becoming asset managers instead of debt managers and in turn will truly lead us into a greater degree of financial freedom.

Debt Reduction Case Study

Currently, over 40 million Americans now have student loan debt. Carrying tens of thousands of debt has almost become the new norm. According to, “In 2008, only 29 Million consumers carried student loan debt. The balance has also shifted from an average loan size in 2008 of $23,000 and now the average loan balance is over $30,000.” Read More

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