Question 1

What is debt management?

Accepted Answer

Debt management is a plan or strategy put in place to ensure your financial obligations are paid on time. There are several strategies you can employ to keep your debts on track for full repayment. The debt avalanche method is one of the most popular approaches to debt management; however, you will have to determine whether it’s the best strategy for your finances.

Question 2

What is an accelerated debt repayment?

Accepted Answer

Accelerated debt repayment allows you to pay off your debt in a shorter time period by making voluntary payments on top of the minimum amount. Note that some lenders don’t permit it and may penalize you if you choose to pay off your loan early.

Question 3

How do I determine my disposable income?

Accepted Answer

Create a comprehensive list of your essential expenses, such as food, rent and utilities and find the total amount you spend on these. You will then subtract the total amount from your monthly income. What’s left is your disposable income. You can use it to pay your debts’ monthly minimums and apply the debt avalanche method.

Question 4

How does the debt avalanche work?

Accepted Answer

The debt avalanche method is a debt management strategy that involves five steps:

Determine your disposable income.
Arrange your debt from the highest interest rate to the lowest.
Use your disposable income to pay your required monthly minimums. Then, add whatever’s left to the debt with the highest interest. Continue doing this until you've paid the debt in full.
Add your excess funds (which you previously used to pay your first debt) to the monthly minimum of the debt with the second-highest interest rate.
Repeat the process until you’ve finished paying for all your existing debts.

Question 5

What if the debt avalanche method doesn’t work for me?

Accepted Answer

Debt avalanche is only one of several strategies to help you manage your financial obligations better. If it doesn’t work for you, you can explore the debt snowball method, another DIY debt management approach. You can also try debt consolidation or using balance transfer cards. You can work with a credit counselor if you need external support.

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